LIBRARY 

OF    THE 

UNIVERSITY  OF  CALIFORNIA. 
Ctes 


\ 


THE  PEOPLE'S  MONEY 


THE  PEOPLE'S  MONEY 


BY 


W.    L.    TEENHOLM 


"  Je  n'ai  point  tire  mes  principes  de  mes  prejug6s,  mais  de  la  nature 
des  choaea." 

"Bien  de8  v£rit6a  ne  se  feront  sentir  qu'  apres  qu'  on  aura  vu  la 
chaine  qui  les  lie  &  d'autres."— MONTESQUIEU 


NEW  YOKE 
CHARLES    SCRIBNER'S    SONS 

1893 


COPYRIGHT,  1893,  BY 
CHAKLES  SCKIBNER'S  SONS 


GENERAL 


TROW  DIRECTORY 

PRINTING  AND  BOOKBINDING  COMPANY 
NEW  YORK 


INTRODUCTION 


THE  following*  pages  are  written  not  for  the 
learned,  or  for  those  who  are  versed  in  economic 
literature,  but  for  the  large  number  of  plain  peo- 
ple who  desire  to  get  some  practical  ideas  upon 
the  important  subject  to  which  they  relate. 

During  the  last  few  years  public  attention  has 
been  very  much  more  occupied  with  questions  of 
financial  legislation  than  at  any  other  period 
within  the  memory  of  those  now  living.  The 
magazines  and  newspapers  have  been  full  of  in- 
formation, inquiries,  and  suggestions  in  regard  to 
the  money  system  of  this  country,  and  these  have 
awakened  interest  and  excited  study.  No  doubt 
there  are  to-day  many  thousands  of  persons  who 
have  become  much  better  informed  upon  this  sub- 
ject than  they  were  a  few  years  ago,  and  a  still 
greater  number  of  thousands  who  desire  to  be  in- 
formed upon  the  subject ;  and  yet  there  still  re- 
main vast  multitudes,  really  intelligent  and  gen- 
erally well  informed,  who  cheerfully  and  rather 
exultantly  profess  ignorance  of  financial  matters, 
and  an  inability  to  comprehend  the  principles 
which  ought  to  control  in  financial  legislation  and 
the  natural  laws  which  govern  the  operations  of 
trade  and  exchange.  It  is  for  these,  especially, 
that  this  publication  is  made, 

107537 


vi  INTRODUCTION 

Many  men  of  moderate  means,  wholly  dependent 
upon  slender  investments,  and  therefore  more  vital- 
ly interested  than  the  rich  in  the  results  of  finan- 
cial legislation  and  administration,  go  through  life 
contented  with  their  fancied  inability  to  under- 
stand the  operation  of  economic  laws.  This  is  all 
the  more  amazing  because  such  persons  must  per- 
ceive that  a  knowledge  of  these  matters  is  pos- 
sessed by  many  of  their  acquaintances  to  whom 
they  are  unwilling  to  acknowledge  intellectual  in- 
feriority, and  they  must  know  that  such  knowledge 
cost  these  others  neither  inordinate  effort  nor  pro- 
longed study. 

It  is  the  purpose  of  this  treatise  to  point  out  the 
importance  of  understanding  about  money,  banks, 
the  Treasury,  etc.,  and  to  enable  any  person  of  or- 
dinary education  and  intelligence  to  acquire  such 
knowledge  of  them  by  attention  to  familiar  experi- 
ences and  to  the  contents  of  the  daily  newspapers. 
An  understanding  of  the  whole  subject  of  finance 
may  be  acquired,  with  but  little  time  and  effort,  if 
only  its  principles  and  practical  methods  are  ob- 
served, one  by  one,  and  in  due  order  of  succession. 

He  who  looks  at  these  matters  only  in  a  general 
sort  of  wray,  and  hastily,  will  necessarily  get  his 
perceptions  into  a  tangle,  and  will  be  confused  in- 
stead of  enlightened.  Whoever  looks  in  the  same 
way  and  for  the  first  time  at  the  machinery  of  a 
factory  in  operation,  might  Well  suppose  himself 
incapable  of  understanding  definitely  and  prac- 
tically the  processes  by  which  wool  and  cotton  are 
made  into  cloth,  amid  such  a  wilderness  of  wheels. 
The  longer  he  tries  to  penetrate,  at  a  single  glance, 


INTRODUCTION  vn 

all  the  movements  rapidly  passing  before  his  eyes, 
the  more  hopeless  is  he  of  arriving1  at  a  distinct 
conception  of  how  it  is  all  done.  But  let  him  be- 
gin at  the  furnace  and  follow  the  successive  steps 
by  which  the  energy  of  heat  is  converted  into  the 
power  that  drives  the  mass  of  machinery  ;  then  let 
him  go  to  the  room  where  the  raw  material  is  un- 
packed ;  next  to  the  cards  where  the  fibre  is 
straightened  and  smoothed;  then  to  the  drawing 
frames  where  the  filaments  are  run  together ;  and 
so  on  past  the  spindles  to  the  looms,  and  in  an 
hour  or  two,  what  before  seemed  confusion,  will  be 
recognized  as  the  perfection  of  order ;  what  he 
thought  incomprehensible  will  be  found  as  simple 
as  threading  familiar  streets. 

To  the  uneducated  it  is  easier  to  master  the  con- 
struction and  movements  of  machinery  than  to 
learn  to  read  or  write  ;  yet  the  number  of  persons 
who  can  read  and  write  is  greater  than  the  number 
who  understand  machinery,  showing  conclusively 
that  in  both  cases  ordinary  effort  and  attention  will 
be  rewarded  with  knowledge.  Now,  if  one  looks  at 
the  business  of  sixty  million  of  people  in  the  same 
way  that  an  uneducated  man  gapes  at  a  library,  or 
as  a  novice  in  machinery  gazes  for  the  first  time  at 
a  great  factory  in  operation,  of  course  the  subject 
will  seem  incomprehensible. 

But  since  no  person  of  ordinary  intelligence  is 
really  incapable  of  learning  to  read,  or  unable  to 
understand  machinery,  surely  no  such  person  need 
doubt  his  ability  to  obtain  a  clear  and  definite  un- 
derstanding of  the  financial  system  of  the  United 
States,  however  complicated  it  may  seem  at  first 


viii  INTRODUCTION 

sight.  In  order  to  reach  such  an  understanding  it 
is  necessary  to  begin  at  the  right  point  and  then  to 
proceed  methodically.  In  learning  to  read  we  be- 
gin with  the  alphabet  and  work  up  to  the  book. 
In  learning  about  manufacturing  we  begin  with 
the  raw  material  and  the  elementary  processes  of 
its  treatment,  and  follow  it  through  the  interme- 
diate stages  until  it  is  turned  out  a  finished  pro- 
duct. And  so  in  finance,  we  must  begin  with  the 
elements  of  the  system,  with  coins  and  bank-notes, 
that  pass  from  hand  to  hand  as  cash ;  with  promis- 
sory notes  and  bills  of  exchange,  which  are  the 
simplest  instruments  of  credit. 

These  two,  cash  and  credit,  are  the  component 
elements  of  all  financial  operations  ;  they  are  like 
the  fibres  of  silk  and  wool  in  tapestry ;  they  are  the 
warp  and  woof,  the  web  and  the  filling,  the  inter- 
woven threads  of  that  fabric,  which  we  call  finance. 
Banks,  clearing-houses,  even  the  United  States 
Treasury,  in  some  of  its  functions,  may  be  regarded 
as  so  many  machines,  used  to  expedite  and  to 
cheapen  the  weaving  together  of  these  threads. 
The  threads  themselves — the  cash  and  credits — are 
brought  to  the  machines  by  the  operations  of 
trade,  while  the  financial  fabric  into  which  they  are 
ultimately  woven  sustains  and  binds  together  our 
extended  commerce,  domestic  and  foreign,  and 
these  in  turn  nourish  our  varied  industries,  and 
bring  to  every  door  the  daily  bread  on  which  we 
live. 

The  people  of  the  United  States,  through  their 
representatives  in  Congress,  have  full  power  to 
control  financial  legislation  ;  but  if  this  power  is  not 


INTRODUCTION  ix 

exercised  aright  there  is  no  way  in  which  mistakes 
or  wilful  wrong  in  monetary  or  currency  legisla- 
tion can  be  subsequently  corrected  without  pecuni- 
ary loss  to  the  people  themselves.  In  this  respect 
the  people  of  our  country  are  no  better  off  than  the 
Austrians  or  the  Eussians.  The  popular  power 
over  a  currency  already  established  is,  everywhere 
alike,  limited  to  an  expression  of  distrust  in  the 
kind  of  money  provided,  by  the  Government,  and 
the  expression  of  this  distrust  becomes  evident  and 
therefore  effective  only  when  it  produces  deprecia- 
tion of  the  particular  currency  distrusted.  Of  such 
money  there  have  been  frequent  examples  in  the 
United  States. 

Before  the  Revolution,  the  Colonies  issued  cur- 
rency in  various  forms,  which  became  depreciated 
because  the  people  lost  confidence  in  its  value. 
The  Continental  money  issued  by  the  United  Colo- 
nies during  the  Revolution  passed  through  a  pro- 
cess of  continuous  depreciation,  until  it  became 
absolutely  worthless.  During  the  first  half  of  the 
present  century  nearly  every  State  granted  chart- 
ers which  empowered  banks  to  issue  circulating 
notes  which  varied  widely  in  value  at  different 
times  and  places,  and  many  of  these  notes  ulti- 
mately became  valueless.  In  no  case  did  the  peo- 
ple at  large  escape  the  suffering  which  attends  a 
fluctuating  and  depreciating  currency,  even  though 
the  final  loss  fell  wholly  on  the  note -holders. 
Neither  the  force  of  law  during  the  colonial  pe- 
riod, nor  the  ardor  of  patriotism  excited  by  the 
Revolution,  nor  that  feeling  of  State  pride  which 
was  so  intense  ,thirty  or  forty  years  ago,  sufficed  to 


x  INTRODUCTION 

maintain  the  value  of  any  currency  which  became 
tainted  with  popular  distrust.* 

During"  the  Revolution  the  patriotic  leaders  in 
that  struggle  exhausted  the  art  of  rhetoric  in  ap- 
peals to  their  countrymen  to  sustain  the  continen- 
tal currency ;  the  press  of  the  struggling  Republic 
united  to  excite  and  to  keep  alive  a  popular  temper 
well  calculated  to  terrify  and  to  coerce  the  recusant 
citizens  who  demanded  for  their  labor  or  their 
products,  a  higher  price  in  continental  money 
than  they  were  willing  to  take  in  British  coins; 
but  neither  passionate  oratory  nor  popular  feeling 
could  arrest  the  depreciation  of  the  bills  of  credit 
put  out  by  the  continental  congress,  or  stay  tho 
march  of  ruin  from  one  end  to  the  other  of  the  po- 
litically free  and  independent  United  States. 

These  facts  in  our  own  history  are  striking  ex- 
amples of  what  has  occurred  over  and  over  again, 
in  one  form  or  another,  both  here  and  in  other  parts 

*  In  South  Carolina,  in  1722,  twenty-eight  of  the  most  promi- 
nent and  wealthy  merchants  of  Charleston  were  cited  before  the 
bar  of  the  colonial  Assembly,  upon  a  charge  of  contempt.  The 
charge  was  founded  upon  a  respectful  memorial  which  they  had 
presented  to  that  body  protesting  against  the  failure  of  the  Gov- 
ernment to  carry  oat  its  promise  to  provide  for  the  redemption  of 
the  currency.  The  memorialists  were  adjudged  guilty  of  con- 
tempt, and  were  actually  imprisoned  until  they  individually  re- 
tracted their  statement  that  the  public  faith  had  been  violated, 
and  as  a  farther  punishment  to  the  whole  class  represented  by 
these  memorialists,  the  Assembly  immediately  ordered  an  addi- 
tional issue  of  the  very  currency  against  which  the  memorial  was 
directed.  Even  these  arbitrary  proceedings  failed  to  sustain  the 
value  of  the  money  in  question.  They  indeed  produced  the  oppo- 
site effect ;  the  currency  became  more  depreciated  than  ever,  and 
in  a  few  months  the  community  was  reduced  to  destitution. 


INTRODUCTION  xi 

of  the  world ;  and  all  such  instances,  taken  to- 
gether, establish  the  principle  that  public  confi- 
dence can  alone  sustain  any  form  of  money  in  un- 
depreciated circulation,  and  that  public  confidence 
can  be  neither  commanded  by  authority,  coerced 
by  violence,  nor  excited  by  sentiment.  When  the 
choice  lay  between  American  paper  currency  and 
"  British  coins,"  even  the  fathers  of  the  Eepublic 
found  themselves  compelled  to  obey  the  natural 
law  rather  than  that  which  they  had  themselves  en- 
acted. The  origin  of  a  currency  is  soon  forgotten ; 
its  probable  future  is  never  lost  sight  of.  Every 
man's  intelligence  naturally  and  necessarily  impels 
him  to  use  every  effort  to  prevent  his  property  and 
interests  from  suffering  by  the  use  of  a  currency 
perceived  to  be  tending  toward  depreciation  ;  and 
all  men  acting  upon  this  common  and  overmaster- 
ing impulse  produce  a  force  against  which  decrees 
and  proclamations  avail  nothing,  a  force  which 
statutes  and  courts  cannot  cope  with,  and  which 
even  cannon  and  bayonets  fail  to  subdue. 

The  instances  referred  to  also  establish  the 
principle,  that  a  depreciated  currency  is  a  positive 
evil,  affecting  all  classes,  reaching  every  individ- 
ual, undermining  accumulated  wealth,  producing 
unhealthy  and  ruinous  speculation,  obstructing  en- 
terprise, repressing  industry,  oppressing  and  de- 
frauding labor,  corrupting  and  impoverishing  the 
entire  community.  Since  we  see  that  the  people  of 
the  United  States  have  no  greater  power  than  the 
subjects  of  the  Czar  to  protect  themselves  against 
the  evils  of  a  depreciated  currency,  it  follows  that 
adequate  security  against  these  evils  must  be  taken 


xii  INTRODUCTION 

beforehand,  and  that  it  can  be  obtained  only  by 
bringing  the  force  of  public  opinion  to  bear  upon 
the  legislation  of  Congress  in  such  a  way  as  to  pre- 
vent the  creation  or  emission  of  any  currency  that 
can  possibly  become  depreciated.  Hence  it  fol- 
lows further  that  public  opinion,  in  order  to  be 
effective  to  this  end,  must  necessarily  be  founded 
upon  a  general  knowledge  throughout  the  commu- 
nity of  the  principles  which  should  underlie  and 
control  such  legislation,  and  upon  a  practical  ac- 
quaintance with  the  manner  in  which  these  prin- 
ciples are  to  be  maintained. 


TABLE  OF  CONTENTS 

PAGE 

INTRODUCTION, v 

CHAPTER  I. 
INDUSTRY,  COMMERCE,  FINANCE,  AND  THE  PEOPLE,        .      1 

CHAPTER  II. 
CASH  AND  CREDIT, 13 

CHAPTER  III. 
MONEY, 22 

CHAPTER  IV. 
NATURAL  BASIS  OF  MONEY, 37 

CHAPTER*  V. 
INDUSTRIAL  BASIS  OP  MONEY, 45 

CHAPTER   VI. 
LAW  AS  A  BASIS  OF  MONEY, 51 

CHAPTER  VII. 
CONFIDENCE  AS  A  BASIS  OF  MONEY, 60 


xiv  TABLE   OF  CONTENTS 

CHAPTER  VIII. 

PAGE 

DEFINITENESS  AND  STABILITY  OF  VALUE,  THE  SOLE  ES- 
SENTIAL QUALITIES  OF  MONEY, 78 

CHAPTER  IX. 
THE  MONETARY  UNIT, 90 

CHAPTER  X. 
LEGAL  TENDER, •        .        .'  109 

CHAPTER  XI. 
THE  MATERIAL  AND  FORM  OF  MONEY,       .        .        .        .116 

CHAPTER  XII. 
COINED  MONEY, 130 

CHAPTER  XIII. 
PAPER  MONEY,     . 141 

CHAPTER  XIV. 
TREASURY-NOTE,  OR  DUE-BILL  CIRCULATION,    .        .        .152 

CHAPTER  XV. 
BANK-NOTE  CIRCULATION, 162 

CHAPTER  XVI. 
THE  BALANCE  OF  TRADE,    ....  .190 


TABLE   OF  CONTENTS  XV 


CHAPTER  XVII. 

PAGE 

THE  VOLUME  OF  MONEY, 199 


CHAPTER  XVIII. 
VALUE, 225 

CHAPTER   XIX. 
THE  STANDARD  OF  VALUE, 238 

CHAPTER  XX. 
THE  GOLD  STANDARD, 258 

CONCLUSION.         . 275 


IN  order  to  put  industry  into  motion,  three  things  are  requisite  :  ma- 
terials to  work  upon,  tools  to  work  with,  and  the  wages  or  recompense, 
for  the  sake  of  which  the  work  is  done. 

Money  is  neither  a  material  to  work  upon,  nor  a  tool  to  work  with ; 
and  although  the  wages  of  the  workman  are  commonly  paid  to  him  in 
money,  his  real  revenue,  like  that  of  all  other  men,  consists  not  in  the 
money,  but  in  the  money's  worth ;  not  in  the  metal  pieces,  but  in  what 
can  be  got  for  them.— ADAM  SMITH,  p.  130. 


OF  THE 

UNIVERSITY 

s&LlF. 


THE   PEOPLE'S  MONEY 

CHAPTEE  I. 

INDUSTKY,   COMMERCE,  FINANCE,  AND  THE  PEOPLE 

This  is  essentially  an  industrial  age,  and  in  no 
country  of  the  world  is  industry  more  universal  or 
more  varied  than  it  is  in  the  United  States.  Here 
nearly  everybody  is  either  an  industrial  worker, 
with  brain  or  sinew,  or  is  maintained  by  some  such 
worker.  A  vast  majority  of  the  population  work 
for  wages,  salaries,  fees,  or  commissions,  or  else  they 
produce  something  for  sale.  In  every  case  the  ob- 
ject sought  by  these  workers  is  what  is  familiarly 
'termed  "making  a  living,"  or  "making  money." 
Few  persons  can  afford  to  give  time,  labor,  or  tal- 
ents for  nothing ;  all,  or  very  nearly  all,  are  intent 
upon  earnings  or  profits,  and  generally  these  can 
be  acquired  only  in  the  form  of  money.  To  acquire 
money,  therefore,  is  in  a  measure  forced  upon  every 
worker,  because  few  are  so  situated  as  to  be  able  to 
produce  the  articles  essential  to  their  sustenance 
and  comfort,  while  none  can  produce  all  they  ha- 
bitually use  and  consume  in  the  way  of  clothing, 
shelter,  food,  fuel,  and  medicine,  not  to  speak  of 


2  THE  PEOPLE'S  MONEY 

such  quasi-necessaries  as  newspapers,  books,  and 
recreation. 

So  many  million  industrial  workers  could  not  be 
employed  profitably  and  constantly,  were  it  not  for 
what  Adam  Smith  termed  "  the  division  of  labor," 
but  what  may  be  termed,  more  accurately,  perhaps, 
in  our  day,  "the  specialization  of  employments." 
It  is  because  the  employments  of  modern  indus- 
try have  become  varied  and  specialized  that  each 
worker  is  able  to  find  continuous  occupation  in 
producing"  something  or  doing  something  beyond 
what  is  adapted  to  his  own  use  or  needs.  The 
excess,  indeed  generally  the  whole,  of  what  is  thus 
done  or  produced,  by  the  multitude  of  individuals, 
becomes  more  or  less  widely  distributed  through- 
out the  community,  and  in  some  cases  over  the 
whole  world,  through  the  agency  of  trade  and  com- 
merce. 

The  distribution  effected  by  these  agencies  re- 
sults in  a  general  interchange  of  services  and 
industrial  products,  and  such  an  interchange  is  es- 
sential to  the  maintenance  of  the  very  specializa- 
tion of  employments  from  which  it  arises,  because 
individual  workers  devoting  themselves  exclu- 
sively, each  to  what  he  can  do  best,  have  no  other 
reliance  but  this  interchange  for  severally  obtain- 
ing what  they  want,  but  do  not  make,  in  exchange 
for  what  they  make,  but  do  not  use.  It  is  evi- 
dent, therefore,  that  communities  industrially  or- 
ganized as  ours  is,  on  the  principle  of  the  speciali- 
sation of  employments,  consist  almost  wholly  of 


INDUSTRY,  COMMERCE,  AND  FINANCE          3 

individuals  who  are  dependent  from  day  to  day 
upon  trade  and  commerce  to  carry  on  that  cease- 
less interchange  by  which  alone  each  converts 
what  he  has,  but  does  not  want,  into  what  he  wants, 
but  lacks.  Trade  and  commerce  effect  the  inter- 
change of  industrial  products  and  services  by  the 
use  of  money,  or  its  substitute,  credit,  employing 
these  as  counters  or  "  chips,"  which  being  paid  or 
pawned  for  services  or  commodities  contributed  to 
the  common  stock,  are  redeemable  in  other  services 
or  commodities  drawn  out  of  the  common  stock. 

From  the  commercial  point  of  view  money  is  a  re- 
ceipt for  value  and  an  order  for  value,  both  in  one, 
just  as  an  elevator  certificate,  which  primarily  is  a 
receipt  for  a  definite  quantity  or  weight  of  grain, 
serves  also  as  an  order  upon  the  elevator  company 
for  a  like  quantity  or  weight  of  grain  of  the  same 
kind  and  grade.  Commerce  deals  wholly  in  ser- 
vices and  commodities,  rating  these  according  to 
their  respective  values,  and  it  employs  money  or 
credit  simply  as  the  medium  or  vehicle  by  means 
of  which  these  values  are  exchanged  one  for  an- 
other. Finance,  on  the  other  hand,  deals  in  money 
and  credit  as  values  in  themselves  distinct  from 
their  function  of  representing,  and  so  conveying 
value  in  other  things.  To  use  a  homely  illustra- 
tion, commerce  may  be  likened  to  a  storage  and 
transfer  company,  with  the  world  for  its  territory, 
while  finance  supplies  the  teams,  wagons,  trains, 
and  ships  by  which  the  transfer  operations  are  car- 
ried on. 


4:  THE  PEOPLE'S  MONEY 

The  transfer  managers  are  intent  only  upon 
selecting  the  best  route  and  the  safest  and  most 
expeditious  carrier,  while  each  carrier  looks  after 
his  horses  and  vans,  his  locomotives  and  cars,  his 
steamers  and  ships,  without  giving  any  thought  as 
to  the  owners,  the  destination,  or  the  contents  of  the 
boxes  and  bales  that  make  up  the  load  or  cargo. 
Thus  the  merchant  buys,  sells,  and  ships  his  goods 
in  each  case,  paying  or  receiving  payment  in  cash, 
credit,  or  bills  of  exchange,  according  to  their  re- 
spective degrees  of  availability,  and  the  bankers 
furnish  these  as  they  may  be  needed  by  the  mer- 
chants, without  taking  note  of  the  commercial 
operations  effected  by  them.  Now,  between  the 
transfer  agent  and  the  carrier  all  transactions  re- 
solve themselves  into  terms  of  weight  or  bulk,  or 
both,  because  weight  and  bulk  are  the  only  things 
about  a  car-load  or  a  cargo  in  which  there  can 
always  be  a  relation  established  between  shipper 
and  carrier ;  so  between  commerce  and  finance  the 
only  common  term,  into  which  all  their  relations 
may  be  resolved  is  value,  because  value  is  the  on- 
ly quality  common  to  all  the  objects  dealt  in  by 
commerce  and  finance  respectively  ;  that  is  to  say, 
on  the  one  hand,  services  and  commodities,  on  the 
other,  money  and  credits. 

Prices  form  the  connecting  link  between  com- 
merce and  finance;  for  the  price  of  a  service  or  of 
a  thing  is  the  expression  of  its  money  equivalent 
at  the  time  and  place  of  its  passing  from  one  per- 
son to  another,  and  the  aggregate  of  commodities 


INDUSTRY,  COMMERCE,  AND  FINANCE          5 

handled  and  of  services  rendered  within  a  given 
area  and  during  a  definite  period  of  time,  multi- 
plied by  the  prices  paid  therefor,  measures  both 
the  commercial  and  the  financial  activity  prevail- 
ing within  those  limits. 

Two  forces  are  in  ceaseless  operation,  compell- 
ing activity  in  both  the  commercial  and  financial 
worlds,  and  these  forces  are  demand  and  supply. 
Commercial  demand  springs  from  the  wants  of 
mankind;  commercial  supply  flows  from  the  uni- 
versality of  productive  industry.  Financial  de- 
mand arises  out  of  the  need  of  capital  in  productive 
industry  and  in  the  operations  by  which  trade  and 
commerce  are  incessantly  administering  supplies 
to  demands ;  and  financial  supply  is  furnished  by 
accumulated  capital  in  the  form  of  money  or  credit. 
The  relation  between  the  supply  of,  and  demand 
for,  services  and  commodities,  respectively,  deter- 
mines their  several  commercial  values ;  the  relation 
between  the  supply  of  money  and  the  demand  for 
it  (modified  by  the  extent  to  which  credit  can  be 
substituted  for  money)  determines  financial  val- 
ues, and  within  limits,  which  will  hereafter  be  ex- 
plained, the  relation  between  commercial  values 
and  financial  values  determines  prices. 

Thus  finance  and  commerce  together  adjust  prices 
to  services  and  commodities  upon  a  basis  of  com- 
parative values  ;  and,  by  means  of  prices,  each  man 
knows  how  much  his  own  talents  and  energies  will 
enable  him  to  command  in  the  products  of  the 
energies  and  talents  of  others.  Prices  are  invaria- 


6  THE  PEOPLE'S  MONEY 

bly  expressed  in  money,  and  hence  money,  besides 
being  the  medium  of  exchange,  is  also  the  general 
measure  of  values.  Money  thus  measures  the  value 
of  everything  upon  which  a  price  can  be  put,  and 
this  includes  not  only  property  and  produce  and 
commodities  of  all  kinds,  but  professional  skill 
and  services,  literary  and  other  intellectual  efforts, 
and  all  labor  performed  for  wages,  salary,  or  other 
money  consideration.  Every  industrial  worker 
earning  anything  at  all  must  submit  to  having  his 
work  or  his  services  measured  by  the  money  in 
which  he  is  paid,  or  which  is  the  basis  of  his  pay- 
ment. 

It  is  because  of  its  function  as  a  measure  of  val- 
ue, or  more  obviously  a  gauge  of  prices,  that  the 
money  we  use  becomes  of  immense  consequence  to 
us.  The  little  cash  we  ordinarily  have  about  our 
persons  may  be  in  any  form  that  passes  current, 
because  that  suffices  to  make  it  a  medium  of  ex- 
change ;  but  whether  we  handle  any  money  at  all  or 
not,  whether  we  ever  see  money  or  not,  makes  not 
the  least  difference  in  our  absolute  dependence 
upon  whatever  money  is  in  use  as  the  measure  of 
values  or  gauge  of  prices  at  the  time  and  place  at 
which  we  live  and  work.  Indeed,  the  less  property 
a  man  owns,  and  the  more  dependent  he  is  upon 
his  daily  efforts  for  a  livelihood,  the  more  vital  is 
his  interest  in  the  instrument  by  which  those  ef- 
forts are  measured.  If  all  the  money  in  general 
circulation  is  good  money,  every  man  is  assured  of 
full  value  for  his  labor  and  property ;  but  bad 


INDUSTRY,  COMMERCE,  AND  FINANCE         7 

money  is  never  an  equivalent  for  what  it  takes  to 
get  it,  and  the  poor  man  is  never  able  to  choose 
the  money  in  which  he  will  be  paid.  The  bankers 
and  capitalists  may  stipulate  for  gold,  or  any  other 
medium  of  payment,  but  not  so  the  ordinary  work- 
ers, for  they  live  by  specialized  employments,  and 
these  compel  them  to  pursue  their  callings  from 
day  to  day,  and  to  accept  compensation  in  what- 
ever money  may  be  in  circulation,  because  they 
depend  upon  that  money  for  buying  food,  cloth- 
ing, etc.,  and  they  cannot  postpone  supplying 
themselves  and  their  families  with  these  neces- 
saries. 

The  industrial  state  in  which  we  live  places  us 
all  under  contract  to  the  world's  commerce  to  de- 
liver all  we  can  produce,  and  to  take  in  exchange  all 
we  consume,  both  to  be  measured  by  money,  which, 
since  it  must  be  paid  out  as  soon  as  it  is  received, 
may  be  regarded  as  only  temporarily  confided  to 
us  for  the  purpose  of  exchanging  our  products  or 
services  for  those  of  others.  While  this  money  is 
a  receipt  for  the  value  of  what  we  produce  or  do, 
and  an  order  for  equivalent  value  in  other  things, 
it  is  also  the  measure  or  gauge  of  these  values. 
In  other  words,  it  is  the  dollar's  worth  and  not 
the  dollar  itself  that  on  the  one  hand  we  work 
for,  and  that  on  the  other  hand  we  enjoy  in  recom- 
pense for  our  efforts. 

Now  it  must  be  evident  that  if  a  person  works 
under  a  contract  to  deliver  any  kind  of  commodity 
by  the  yard  or  the  pound,  and  to  receive  in  return 


8  THE  PEOPLE'S  MONEY 

other  commodities  by  the  yard  or  pound,  he  has  a 
right  to  honest  weights  and  measures,  and  espe- 
cially he  needs  to  be  assured  beforehand  that  the 
same  measurements  and  weights  which  are  ap- 
plied to  what  he  delivers  are  also  applied  to 
what  he  is  to  receive;  hence,  on  the  same  prin- 
ciple, every  industrial  worker  has  a  right  to 
honest  money,  and  needs  to  be  assured  that  his 
work  is  going  to  be  paid  for  in  dollars  of  identi- 
cally the  same  value  as  the  dollars  he  is  compelled 
to  pay  out  for  what  he  consumes.  So  important  is 
it  that  money  should  be  permanent  in  value  that  in 
all  civilized  countries  the  regulation  of  it  is  one  of 
the  prerogatives  of  sovereignty,  and  history  shows 
that  there  is  hardly  any  prerogative  of  which  the 
intelligent  and  provident  exercise  is  so  far-reach- 
ing in  its  effects. 

Under  our  Constitution  Congress  alone  possesses 
the  power  to  "  regulate  the  value  of  money,"  and 
this  power  is  exercised  by  means  of  the  coinage 
and  currency  laws  which  establish  what  shall  be 
money.  The  responsibility  thus  thrown  upon  Con- 
gress is  very  great,  because,  in  the  first  place,  as 
has  been  said  already,  nearly  everybody  is  inter- 
ested, and  in  the  second  place  the  industrial  masses 
cannot  protect  themselves  against  the  consequences 
of  unwise  monetary  legislation.  All  of  us  must 
submit  to  having  the  value  of  our  labor,  produce, 
etc.,  measured  by  whatever  dollars  Congress  au- 
thorizes, and  very  few  persons,  comparatively,  are 
able  to  ascertain  whether  these  dollars  are  really 


INDUSTRY,  COMMERCE,  AND  FINANCE          9 

of  full  value.  As  long  as  other  people  take  them 
from  us  at  full  value  we  are  satisfied ;  but  if  any 
particular  dollars  should  at  any  moment  of  time  be 
discovered  not  to  be  of  full  value  they  can  thence- 
forward be  passed  off  only  at  a  depreciation,  and 
consequently  whoever  at  that  time  happens  to  have 
any  of  them  will  suffer  loss ;  but  what  is  much  worse 
and  much  more  far-reaching,  all  who  have  been 
paid  in  such  money  from  the  inception  of  the  de- 
preciation will  have  been  suffering  loss  without 
perhaps  knowing  to  what  to  attribute  it,  and  all 
who  have  accepted  old  prices  for  their  labor  or 
goods  or  property,  or  agreed  to  furnish  them  at 
such  prices,  will  have  suffered  also,  and  this  in- 
cludes all  persons  on  fixed  salaries,  or  who  are  em- 
ployed on  permanent  wages. 

History  records  many  instances  of  a  currency 
becoming  depreciated,  and  in  every  instance  the 
laboring  classes,  small  traders,  professional  men, 
farmers,  and  the  like,  have  been  the  chief  victims. 
These  persons  constitute  the  bulk  of  every  com- 
munity, and  they  seldom  have  the  knowledge,  skill, 
or  opportunity  to  protect  themselves  from  loss 
from  a  depreciating  currency;  while  merchants, 
whose  transactions  are  on  a  large  scale,  bankers, 
and  capitalists  in  large  cities,  not  only  possess  the 
knowledge  which  enables  them  to  detect  signs  of 
approaching  depreciation,  but  they  have  also  the 
skill  and  opportunity  to  "  hedge  "  against  it,  be- 
sides having  access  to  facilities  for  applying  their 
skill  and  knowledge  in  such  a  way  as  to  enrich 


10  THE  PEOPLE'S  MONEY 

themselves  under  the   very  conditions  which  are 
ruinous  to  all  other  classes.* 
Beason  and  history  alike  prove  conclusively  that 

*  "  It  may  well  be  doubted,"  says  Macaulay  in  his  History  of 
England,  Chapter  xxi.,  '"  whether  all  the  misery  which  had  been 
inflicted  on  the  English  nation  in  a  quarter  of  a  century  by  bad 
Kings,  bad  Ministers,  bad  Parliaments,  and  bad  Judges,  wa^ 
equal  to  the  misery  caused  in  a  single  year  by  bad  crowns  and 
bad  shillings.  Those  events  which  furnish  the  best  theme  for 
pathetic  or  indignant  eloquence  are  not  always  those  which  most 
affect  the  happiness  of  the  great  body  of  the  people.  The  mis- 
government  of  Charles  and  James,  gross  as  it  had  been,  had  not 
prevented  the  common  business  of  life  from  going  steadily  and 
prosperously  on.  While  the  honor  and  independence  of  the 
state  were  sold  to  a  foreign  power,  while  chartered  rights  were 
invaded,  while  fundamental  laws  were  violated,  hundreds  of  thou- 
sands of  quiet,  honest,  and  industrious  families  labored  and 
traded,  ate  their  meals  and  lay  down  to  rest  in  comfort  and  se- 
curity. Whether  Whigs  or  Tories,  Protestants  or  Jesuits  were 
uppermost,  the  grazier  drove  his  beasts  to  market,  the  grocer 
weighed  out  his  currants,  the  draper  measured  out  his  broad- 
cloth, the  hum  of  buyers  and  sellers  was  as  loud  as  ever  in  the 
towns,  the  harvest-home  was  celebrated  as  joyously  as  ever  in  the 
hamlets,  the  cream  overflowed  the  pails  of  Cheshire,  the  apple- 
juice  foamed  in  the  presses  of  Herefordshire,  the  piles  of  crock- 
ery glowed  in  the  furnaces  of  the  Trent,  and  the  barrows  of  coal 
rolled  fast  along  the  timber  railways  of  the  Tyne.  But  when 
the  great  instrument  of  exchange  became  thoroughly  deranged, 
all  trade,  all  industry  were  smitten  as  with  a  palsy.  The  evil  was 
felt  daily  and  hourly  in  almost  every  place  and  by  almost  every 
class,  in  the  dairy  and  on  the  threshing-floor,  by  the  anvil  and 
the  loom,  on  the  billows  of  the  ocean  and  in  the  depths  of  the 
mine.  Nothing  could  be  purchased  without  a  dispute.  Over 
every  counter  there  was  wrangling  from  morning  to  night.  The 
workman  and  his  employer  had  a  quarrel  as  regularly  as  the 
Saturday  came  round.  On  a  fair-day  or  on  a  market-day  the 
clamors,  the  reproaches,  the  taunts,  the  curses  were  incessant ; 
and  it  was  well  if  no  booth  was  overturned  and  no  head  brok- 


INDUSTRY,  COMMERCE,  AND  FINANCE        11 

money  liable  to  depreciation  is  bad  money  for  the 
people  at  large.  The  longer  it  circulates  at  full 
value  the  worse  and  more  wide-spread  will  be  the 

en.  No  merchant  would  contract  to  deliver  goods  without  mak- 
ing some  stipulation  about  the  quality  of  the  coin  in  which  he  was 
to  be  paid.  Even  men  of  business  were  often  bewildered  by  the 
confusion  into  which  all  pecuniary  transactions  were  thrown. 
The  simple  and  the  careless  were  pillaged  without  mercy  by  ex- 
tortioners whose  demands  grew  even  more  rapidly  than  the 
money  shrank.  The  price  of  the  necessaries  of  life,  of  shoes,  of 
ale,  of  oatmeal,  rose  fast.  The  laborer  found  that  the  bit  of 
metal,  which,  when  he  received  it  was  called  a  shilling,  would 
hardly,  when  he  wanted  to  purchase  a  pot  of  beer  or  a  loaf  of 
rye  bread,  go  as  far  as  sixpence.  Where  artisans  of  more  than 
usual  intelligence  were  collected  in  great  numbers,  as  in  the 
dockyard  at  Chatham,  they  were  able  to  make  their  complaints 
heard  and  to  obtain  some  redress.  But  the  ignorant  and  helpless 
peasant  was  cruelly  ground  between  one  class  which  would  give 
money  only  by  tale  and  another  which  would  take  it  only  by 
weight.  Yet  his  sufferings  hardly  exceeded  those  of  the  unfor- 
tunate race  of  authors.  Of  the  way  in  which  obscure  writers 
were  treated  we  may  easily  form  a  judgment  from  the  letters, 
still  extant,  of  Dryden  to  his  bookseller,  Tonson.  One  day  Ton- 
son  sends  forty  brass  shillings,  to  say  nothing  of  clipped  money. 
Another  day  he  pays  a  debt  with  pieces  so  bad  that  none  of  them 
will  go.  The  great  poet  sends  them  all  back,  and  demands  in 
their  place  guineas  at  twenty-nine  shillings  each.  'I  expect,' 
he  says  in  one  letter,  4  good  silver,  not  such  as  I  have  had  for- 
merly.' '  If  you  have  any  silver  that  will  go,'  he  says  in  an- 
other letter,  '  my  wife  will  be  glad  of  it.  I  lost  thirty  shillings 
or  more  by  the  last  payment  of  fifty  pounds.'  These  complaints 
and  demands  which  have  been  preserved  from  destruction  only 
by  the  eminence  of  the  writer,  are  doubtless  merely  a  fair  sample 
of  the  correspondence  which  filled  all  the  mail-bags  of  England 
during  several  months. 

In  the  midst  of  the  public  distress  one  class  prospered  greatly, 
the  bankers  ;  and  among  the  bankers  none  could  in  skill  or  in 
luck  bear  a  comparison  with  Charles  Duucoinbe.  He  had  been, 


12  THE  PEOPLE'S  MONEY 

evils  manifesting  themselves  as  soon  as  its  defects 
are  revealed,  and  sooner  or  later  a  defective  cur- 
rency will  surely  be  detected  and  become  deprecia- 
ted. The  only  safeguard  to  the  people  against  the 
evils  of  bad  money  is  intelligent  and  prudent  legis- 
lation ;  but  in  order  to  insure  this  in  our  country 
the  people  themselves  must  understand  financial 
matters,  for  without  this  knowledge  they  cannot 
distinguish  between  such  of  their  representatives 
as  counsel  wisely  and  such  as  are  led  off  by  chi- 
meras, nor  is  it  to  be  expected  that  representatives 
will  vote  and  act  on  the  whole  with  any  greater 
degree  of  intelligence  than  that  which  prevails  in 
the  constituencies  from  which  they  come,  and  to 
which  alone  they  feel  accountable. 

not  many  years  before,  a  goldsmith  of  very  moderate  wealth.  He 
had  probably,  after  the  fashion  of  his  craft,  plied  for  customers 
under  the  arcades  of  the  Royal  Exchange,  had  saluted  merchants 
with  profound  bows,  and  had  begged  to  be  allowed  the  honor  of 
keeping  their  cash.  But  so  dexterously  did  he  now  avail  him- 
self of  the  opportunities  of  profit  which  the  general  confusion  of 
prices  gave  to  a  money-changer  that,  at  the  moment  when  the 
trade  of  the  kingdom  was  depressed  to  the  lowest  point,  he  laid 
down  near  ninety  thousand  pounds  for  the  estate  of  Helmsley,  in 
the  North  Riding  of  Yorkshire." 


-     CHAPTEE  II. 

CASH  AND  CKEDIT 

Everybody  is  familiar  with  the  terms  "  Cash  and 
Credit,"  as  ordinarily  used  and  understood.  In 
cash  transactions  delivery  and  payment  are  simul- 
taneous, while  in  credit  transactions  payment  is 
more  or  less  deferred.  Accepting  this  distinction 
for  the  present,  let  each  reader  reckon  up  how 
much  in  coins,  bills,  and  notes,  i.e.,  actual  money, 
passes  out  of  or  into  his  hands  in  connection  with 
his  business,  his  investments,  and  his  household 
and  personal  expenditures,  then  let  him  compute 
what  amounts  are  represented  by  checks,  collec- 
tions or  payments  by  others,  offsets  in  accounts, 
etc.,  and  he  will  be  surprised  to  find  how  small 
a  proportion  the  former  amount  bears  to  the  latter. 

If  anyone,  after  making-  these  computations,  will 
compare  results  with  two  other  persons,  one  whose 
aggregate  receipts  and  expenditures  are  greater, 
and  another  in  whose  case  the  amounts  are  less 
than  in  his,  he  will  find  that  the  more  a  man 
receives  and  pays  the  smaller  is  the  percentage  of 
actual  money  handled  by  him.  The  immense  trans- 
actions in  stocks,  exchange,  and  merchandise  at 
New  York,  London,  and  other  great  centres,  are  all 


14:  THE  PEOPLE'S  MONEY 

settled  by  checks,  and  these  checks  are  settled  again 
through  clearing-houses,  so  that  very  little  money 
passes  even  in  the  final  adjustment  of  balances. 
It  is  highly  probable  that  if  every  coin,  note,  and 
bank-bill  in  any  given  community  at  some  mo- 
ment of  time  could  be  located,  much  the  larger 
part  in  amount,  outside  of  what  is  in  bank  and 
in  the  tills  of  tradesmen,  refreshment  places,  and 
railroad  offices,  would  be  found  in  the  possession 
of  the  poorer  families. 

Of  course  there  is  no  way  of  verifying  this  con- 
jecture, but  it  rests  on  these  grounds: 

1st.  The  poorer  families  generally  include  a  de- 
cided majority  of  the  community. 

2d.  Each  member  of  such  families  generally  re- 
ceives and  spends  separately  his  or  her  income, 
while  the  money  comes  to  such  persons  in  small 
amounts,  at  short  intervals,  and  is  seldom  sufficient 
in  amount  to  be  deposited  in  bank.  On  the  other 
hand,  the  head  of  a  well-to-do  family  receives  or 
supplies  the  means  for  all,  keeps  it  in  bank,  dis- 
burses it  by  checks,  buys  for  the  whole  family, 
chiefly  on  credit,  and  gives  to  each  member  only 
the  money  required  for  small  personal  expendi- 
tures. 

3d.  The  poorer  a  man  is,  the  less  his  credit. 
Those  families  whose  credit  suffices  for  their  sup- 
plies for  a  month,  need  less  money  per  capita  than 
those  who  must  buy  from  day  to  day  and  pay  as 
they  buy,  the  bare  needs  of  subsistence  being  very 
nearly  alike  in  all  classes. 


CASH  AND  CREDIT  15 

4th.  Real  estate  agents  find  as  a  fact  that  their 
poorer  tenants  pay  their  rents  in  money,  while  the 
others  pay  in  checks. 

From  these  considerations  and  others  of  a  like 
nature,  it  is  apparent  that  in  every  community  the 
poorer  classes  handle  more  actual  money  than  the 
richer  classes,  a  fact  not  generally  recognized  be- 
cause we  are  accustomed  to  think  and  speak  of 
money  being  owned,  paid,  and  received  in  a  great 
many  cases  in  which  no  money  at  all  is  either  pos- 
sessed or  handled. 

If  your  bank  account  shows  a  balance  in  your 
favor  you  say  you  have  so  much  money  in  bank, 
while  in  truth  you  have  no  money  in  bank.  All 
the  money  (coin,  bank-bills,  etc.)  in  a  bank  belongs 
to  the  corporation,  constitutes  part  of  its  assets, 
hence  no  fraction  of  it  can  belong  to  any  individual 
depositor.  The  moment  the  teller  receives  your 
deposit  and  enters  its  amount  in  your  pass-book, 
that  moment  the  money  you  have  handed  him 
ceases  to  be  yours  and  becomes  the  money  of  the 
bank;  the  very  next  moment  it  may  be  paid  to 
some  one  else,  who  takes  it  out  of  the  bank  alto- 
gether, and  though  this  is  done  under  your  eyes, 
you  do  not  dream  of  objecting,  though  you  surely 
would  interfere  if  you  saw  any  one  carrying  off 
bonds  you  had  deposited  in  that  bank,  or  if  you 
should  know  of  any  one  using  a  horse  you  have  at 
livery.  Hence  there  is  a  fundamental  difference 
between  money  and  other  things ;  anything  else 
committed  to  another's  custody  remains  specifi- 


16  THE  PEOPLE'S  MONEY 

cally  the  property  of  the  depositor,  but  money  de- 
posited in  bank  is  parted  with  as  absolutely  as 
when  it  is  paid  for  a  purchased  article ;  in  the 
one  case  the  purchaser  has  the  article,  and  in  the 
other  the  depositor  has  the  entry  in  his  pass-book, 
but  the  money  itself  is  gone  in  the  one  case  as 
much  as  in  the  other. 

This  entry  in  the  pass-book  represents,  as  due 
from  the  bank,  a  sum  of  money  equal  to  that  de- 
posited, not  the  same  money  but  its  equivalent, 
and  as  long  as  the  bank  meets  its  obligations  the 
depositor  feels  secure  of  getting  that  amount 
whenever  he  asks  for  it,  but  if  the  bank  should  fail 
he  cannot  get  it.  Suppose  the  sum  to  be  $100,  and 
that  owing  $100  he  gives  his  creditor  a  check  on 
the  bank  for  that  amount.  Speaking  familiarly, 
one  would  say  he  paid  all  his  money  on  that  debt, 
whereas  he  did  not  pay  money  at  all.  The  proof 
of  this  is  that  if  the  bank  fails  before  the  check 
can  be  presented  there,  he  will  still  have  to  pay 
that  debt,  whereas,  if  he  had  paid  it  in  money  it 
would  have  been  extinguished.  What  a  man  has 
in  bank,  therefore,  is  not  money,  but  it  may  be  called 
"  money -at-credit." 

As  in  ordinary  cases  the  distinction  between 
money  proper  and  money  at  credit  is  not  ob- 
served, so  the  term  "  cash  "  has  become  considera- 
bly warped  from  its  specific  use  as  the  antithesis 
of  credit,  for  many  so-called  "cash  transactions" 
are  settled  monthly,  and  in  some  trades  the  term 
even  covers  settlement  by  note  bearing  interest. 


CASH  AND  CREDIT  17 

Although  money  at  credit  is  now  generally  called 
"  cash,"  still,  strictly  speaking,  the  term  "  cash  "  is 
applicable  only  to  money,  and  all  transactions  rest 
on  credit,  except  those  balanced  by  a  payment  in 
cash  at  the  moment  the  transaction  is  made.  It 
is  important  to  observe  this  distinction,  for  most 
readers  will  be  astonished  to  find  how  immense 
is  the  preponderance,  both  in  numbers  and  amount, 
of  credit  over  cash  transactions  in  every  commun- 
ity, and  how  greatly  the  use  of  credit  economizes 
the  use  of  money. 

It  will  also  surprise  many  to  discover  that  as  a 
general  thing  those  who  give  credit  are  more  nu- 
merous than  those  who  receive  it,  and  that  the  ag- 
gregate wealth  of  all  the  creditors  in  a  commu- 
nity is  generally  less  than  that  of  all  the  debtors. 
Here,  again,  it  is  impossible  to  demonstrate  the 
proposition,  but  it  rests  on  grounds  that  cannot  be 
questioned.  Here  are  some  examples : 

Every  tradesman  who  charges  goods  to  his  cus- 
tomers is  their  creditor  for  the  amount  charged, 
and  they  are  his  debtors.  Every  person  working 
for  wages  or  salary,  who  is  not  paid  in  advance, 
gives  his  employer  credit  from  hour  to  hour,  from 
day  to  day,  or  for  weeks  or  months,  as  the  case 
may  be.  Such  persons  are  creditors,  and  their 
employer  is  debtor  for  the  amount  of  compensa- 
tion earned  up  to  the  moment  of  payment. 

Every  depositor  in  a  bank,  savings  or  otherwise, 
is  a  creditor  of  that  institution,  and  every  bank- 
note is  evidence  of  debt  due  by  the  bank  to  the 
2 


18  THE  PEOPLE'S  MONEY 

holder  of  the  note.  So  also  every  greenback  or  coin 
note  is  evidence  of  so  much  debt  due  to  the  holder 
by  the  Government  of  the  United  States. 

Every  person  who  pays  rent  in  advance  becomes 
a  creditor  of  his  landlord ;  every  person  who  buys  a 
ticket  on  a  railway  or  steamboat,  or  who  pays  his 
fare  on  entering  a  street-car,  is  a  creditor  of  the 
transportation  company ;  every  buyer  of  a  ticket  to 
a  theatre,  circus,  or  other  entertainment,  is  a  cred- 
itor of  the  proprietor ;  every  person  who  prepays 
postage,  express  charge,  or  premiums  of  insurance, 
is  a  creditor. 

That  these  are  credit  transactions  will  be  evi- 
dent, as  soon  as  it  is  considered  that  in  each  one 
of  these  cases  the  person  who  advances  his  ser- 
vices, money,  or  goods  may  fail  to  receive  the  sal- 
ary, wages,  service,  payment,  benefit,  or  gratifica- 
tion expected  and  tacitly  contracted  for,  which 
could  not  happen  in  a  cash  transaction,  where  pay- 
ment and  performance  are  simultaneous.  Now, 
since  these  persons  and  all  others  to  whom  any- 
thing is  owing,  including  the  comparatively  small 
number  who  make  a  business  of  lending  money,* 
are  creditors,  obviously  in  most  communities  the 
creditors  outnumber  the  debtors,  while  it  is  prob- 
able that  the  aggregate  wealth  of  all  the  debtors 
is  greater  than  that  of  all  the  creditors,  first,  be- 

*  Every  loan  of  money  upon  collateral  security  is  an  instance 
of  mutual  trust,  the  borrower  trusts  the  lender  with  his  property 
in  return  for  being  entrusted  with  the  lender's  money,  and  gen- 
erally the  value  of  the  collateral  exceeds  the  amount  of  the  loan. 


CASH   AND  CKEDIT  19 

cause  the  debtors  in  the  above  instances  are  pos- 
sessors of  wealth,  while  the  creditors  are  not,  and 
secondly,  because  wealth  is  the  basis  of  credit,  and 
the  richer  the  man  the  more  he  is  able  to  borrow. 

It  is  evident,  therefore,  that  considerable  confu- 
sion of  ideas  has  arisen  from  the  inaccurate  use  of 
the  words  " money"  and  "credit,"  and  that  there 
is  a  wide-spread  popular  error  as  to  which  are  the 
creditor  and  which  are  the  debtor  classes  of  the 
community,  an  error  hurtful  to  the  masses,  chiefly 
because  it  deceives  them  as  to  the  extent  of  their 
interest  in  the  monetary  system  of  the  country  and 
their  stake  in  its  moneyed  institutions. 

A  correct  understanding  of  facts  leads  to  these 
conclusions  : 

1st.  Since  money  and  money-at-credit  are  habit- 
ually regarded  as  identical,  and  are  used  indiscrim- 
inately in  cash  settlements,  the  theory  of  a  per 
capita  su'pply  of  currency  lacks  the  foundation 
usually  assumed  to  underlie  it. 

2d.  Credit  represents  money-value,  not  actual 
cash  in  hand  nor  money-at-credit ;  it  is  trusting  to 
a  future  payment  of  money,  and  thus  it  supple- 
ments the  use  of  money,  and  enormously  extends 
the  sphere  of  trade  and  commerce,  besides  facili- 
tating a  countless  number  of  transactions  entering 
into  the  conveniences  of  life. 

3d.  Credit  economizes  the  use  of  money  by 
affording  time  for  the  same  coins,  notes,  etc.,  to  go 
about  from  hand  to  hand,  from  bank  to  bank,  and 
even  from  city  to  city,  settling  successively  an 


20  THE  PEOPLE'S  MONEY 

immense  number  of  accounts ;  it  also  obviates  the 
use  of  money  altogether  in  the  numberless  cases  in 
which  credits  are  offset  and  balanced,  one  against 
the  other,  as  happens  every  day  among  customers 
of  the  same  bank  and  among  banks  in  the  same 
city. 

4th.  Credit  accomplishes  all  this  through  the  in- 
strumentality of  bookkeeping,  checks,  drafts,  bills 
of  exchange,  banks  of  deposit,  clearing-houses,  and 
other  similar  appliances.  Without  these  all  busi- 
ness would  be  cramped,  for  there  is  not  gold  and 
silver  enough  in  the  world  to  supply  the  actual 
money  needed  for  settling  the  transactions  of  a 
single  day  in  New  York  and  London  alone,  even  if 
all  the  rest  of  the  world  should  go  without;  nor 
would  any  system  of  paper  currency  possess  the 
flexibility  of  volume  or  the  stability  of  value  ex- 
hibited by  the  credit  systems  of  Europe  and  the 
United  States. 

5th.  These  appliances  (the  banks,  etc.)  bring  the 
use  of  credit  within  reach  not  only  of  large  com- 
mercial and  financial  operators,  but  of  most  peo- 
ple in  easy  circumstances  throughout  the  United 
States,  thus  leaving  the  bulk  of  the  actual  money 
in  the  country  for  the  exclusive  use  of  those  who 
are  too  poor  or  too  little  known  to  obtain  or  to 
utilize  credit. 

6th.  These  latter  classes,  though  excluded  them- 
selves from  credit,  are,  nevertheless,  vitally  inter- 
ested in  the  maintenance  and  the  extension  of  the 
credit  system,  for,  whenever  credits  are  curtailed 


CASH  AND  CEEDIT  21 

those  who  habitually  use  money  find  themselves  in 
competition  with  the  other  classes  for  the  control 
of  what  actual  money  is  in  circulation,  and  people 
who  have  least  credit  are  always  least  able  to  secure 
what  cash  they  need  in  case  of  a  "  squeeze  "  in  the 
money  market. 

This  is  not  the  place  to  prove  these  proposi- 
tions; they  will  all  be  fully  established  in  the 
course  of  the  present  treatise,  but  they  are  intro- 
duced here  to  arrest  attention,  and  to  set  readers 
thinking  for  themselves,  which  is  the  only  sure 
antidote  to  errors  and  delusions  that  are  tradi- 
tional, and  that  are  held  with  the  tenacity  with 
which  men  cling  to  superstitions  and  prejudices. 
The  farmers  are,  in  one  sense,  the  great  creditor 
class,  for  each  of  them  is  constantly  investing  his 
own  capital,  and  all  he  can  borrow  from  others,  in 
crops  and  in  live  stock.  The  crop  and  the  stock  are 
debtors  to  the  farmer  not  only  for  the  capital  thus 
invested,  but  also  for  the  value  of  all  labor  bestowed 
upon  them  by  the  farmer  and  his  family.  The 
farmers,  therefore,  are  vitally  interested  in  our 
money  laws,  for  there  is  a  long  time  between  sow- 
ing and  reaping,  and  the  farmer  needs  to  collect 
from  the  produce  of  his  fields  and  flocks  and  herds 
as  good  money  as  he  puts  into  these  investments. 


CHAPTEE  in. 

MONEY 

Money,  in  the  concrete  form  of  coins,  bills,  or 
notes,  is  the  most  familiar  of  objects  ;  but  money 
becomes  a  mystery  as  soon  as  it  is  thought  of,  in 
the  abstract,  as  one  of  the  elements  of  modern  in- 
dustrial development.  Men,  women,  and  children 
handle  money  daily,  talk  about  it,  think  of  it,  spend 
it ;  the  great  majority  are  earners  of  money,  bor- 
rowers, lenders,  sellers,  or  buyers,  yet  compara- 
tively few  persons,  even  among  bankers  and  states- 
men, can  answer  satisfactorily  to  themselves  these 
simple  questions :  What  is  money  ?  What  is  its 
function  or  office  ?  What  is  the  source  of  its  power 
to  command  persons  and  things  ?  On  what  prin- 
ciples should  its  substance  be  determined  ?  How 
is  its  quantity  regulated  ?  How  are  prices  estab- 
lished? Why  do  prices  vary  at  different  times 
and  in  different  places  ? 

The  question,  What  is  money  ?  may  seem  as 
puzzling  as  Pilate's  famous  question,  "What  is 
truth  ? "  but  the  puzzle  in  both  cases  is  about  words, 
not  things.  Invert  the  questions  and  apply  them 
to  some  actual  case.  Is  a  certain  thing  true  ?  Is 
a  certain  thing  money !  Straightway  the  puzzle 


MONEY  23 

vanishes  and  we  know  how  to  seek  out  answers. 
Truth  is  established  by  evidence  ;  money  is  recog- 
nized by  its  ability  to  perform  certain  functions. 
Doctrinaires  dispute  about  the  meaning  of  the 
word  "  money  "  because  each  holds  some  theory 
about  finance  or  political  economy  to  which  his 
own  particular  definition  of  money  is  the  key  ;  but 
surely  there  ought  not  to  be  any  uncertainty  about 
the  meaning  of  a  word  in  such  constant  and  such 
universal  use  ;  nor  is  there  any  uncertainty,  except 
among  advocates  of  opposing  theories.  Every- 
body, including  these  very  theorists,  recognize 
money  at  sight ;  even  children  can  generally  recog- 
nize it,  or  if  any  one  is  in  doubt  about  a  particular 
coin  or  note  there  is  a  conclusive  test  always  at 
hand — will  it  pass  ?  Will  it  buy  things,  or  hire 
persons  or  property,  or  pay  debts  ?  If  it  will  do  all 
these  things  exactly  as  they  are  done  by  what  is 
undoubtedly  money,  then  the  coin  or  note  in  ques- 
tion is  money. 

This  is  the  final  test,  because  from  this  there  is 
no  appeal.  Anything  that  will  pass  current,*  from 
hand  to  hand,  throughout  a  community,  buying, 
hiring,  paying  debts,  is,  to  all  intents  and  purposes, 
money.  The  community  may  not  be  wise  in  ac- 
cepting certain  things  as  money  and  becoming  de- 
pendent upon  them,  but  that  is  a  very  different 

*  This  word  "current,"  from  the  Latin  verb  "currere,"  to  run, 
expresses  the  idea  that  is  in  our  minds  when  we  say  that  a  coin 
'* passes."  Our  term  currency  comes  from  the  same  root  and  in- 
cludes the  same  idea. 


24  THE  PEOPLE'S  MONEY 

matter.  We  are  not  yet  considering  what  the  ma- 
terial and  form  of  money  ought  to  be,  that  will 
come  later,  we  have  now  to  determine  only  to  what 
class  of  objects  the  term  "  money "  is  familiarly 
and  universally  applied,  and  it  is  true  and  safe  to 
say  that  this  term  attaches  to  whatever,  as  a  matter 
of  fact,  passes  current  in  buying,  hiring,  and  pay- 
ing debts.  The  substantial  correctness  of  this 
definition  is  supported  by  the  use  of  the  word  in 
the  account  of  the  earliest  recorded  instance  of  the 
intervention  of  money  in  the  affairs  of  human  life. 

In  Genesis  xxiii.  16,  it  is  told  that  Abraham  paid 
for  a  burying-ground  in  money  "  current  with  the 
merchant."  As  in  Abraham's  time  money  to  serve 
as  a  valid  payment  must  be  "  current  with  the  mer- 
chant," so  also  in  our  time  it  must  be  such  as  will 
pass  among  the  people,  because  now  everybody 
buys  and  sells,  hence  we  are  all  merchants  in  one 
sense,  and  "  current  money  with  the  merchant " 
is  equivalent  to  money  that  passes  among  the 
people.* 

Having  ascertained  how  the  word  money  is  ap- 
plied in  its  common  use  and  acceptation,  the  obvi- 

*  In  the  patriarch's  time,  however,  money  was  seldom  used, 
and  there  were  no  coins,  hence  Abraham's  payment  had  to  be 
made  by  weighing  bars  or  ingots  of  silver.  It  was  the  fineness  of 
this  silver  which  constituted  it  "current  with  the  merchant," 
the  genuineness  of  the  shekel  weight,  too,  might  have  entered  into 
the  expression.  These  two  things — fineness  and  accurate  weight 
— are  now  secured  by  means  of  coinage,  which  not  only  greatly  fa- 
cilitates the  use  of  money,  but  gives  to  it,  as  a  measure  of  value, 
a  degree  of  precision  otherwise  unobtainable. 


MONEY  25 

ous  reflection  is  that  it  is  the  function  or  office  per- 
formed that  determines  the  correctness  of  the  ap- 
pellation in  any  particular  instance,  hence  we  have 
next  to  inquire,  what  is  the  function  or  office  of 
money  ? 

Let  us  deal  only  with  facts  of  ordinary  experi- 
ence. Take  this  simple  case  to  begin  with :  Give 
a  boy  a  dollar.  His  first  thought  is  how  will  he 
spend  it.  If  he  keeps  it  any  time  at  all  it  is  simply 
because  he  wants  to  consider  how  he  can  get  the 
most  out  of  it.  He  knows  that  it  can  command  for 
him  a  wide  range  of  gratifications,  that  it  may  be 
divided  and  subdivided,  but  he  also  understands 
that  whether  spent  as  a  whole  or  piecemeal,  the 
money  must  be  parted  with  in  order  to  be  enjoyed. 
When  once  he  has  secured  a  dollar's  worth  of  any- 
thing, or  of  several  things  combined,  the  dollar  it- 
self will  be  wholly  gone  ;  his  top  or  his  knife  re- 
mains with  him,  he  can  use  them,  enjoy  them  over 
and  over  again,  their  power  to  serve  or  to  please  is 
not  impaired  by  its  exercise,  but  every  gratification 
derived  from  the  dollar  diminishes  the  dollar's 
power  to  provide  further  gratifications. 

Take  another  case  :  Offer  a  man  a  dollar  to  do  a 
certain  piece  of  work  for  you.  His  first  thought  is, 
can  he  afford  to  give  you  so  much  of  his  time,  skill, 
and  labor  for  that  amount  of  money  ?  To  decide 
this  question  he  must  put  a  value  upon  his  time, 
his  labor,  and  his  skill ;  he  must  calculate  how  much 
of  those  will  be  expended  upon  the  job,  and  then 
he  must  measure  these  combined  values  by  the 


26  THE  PEOPLE'S  MONEY 

dollar,  because  he  will  not  give  them  to  you  for 
less  than  what  he  regards  as  an  equivalent.  If  he 
decides  that  the  job  will  consume  three  half-dollars' 
worth  of  his  time,  skill,  and  labor,  you  will  have  to 
consider  whether,  when  done,  it  will  be  worth  to 
you  as  much  as  a  dollar  and  a  half  of  your  money, 
because  if  you  have  the  work  done  you  must  part 
with  your  money  in  payment  for  it,  and  you  will 
not  give  any  sum  of  money  for  less  than  its  equiva- 
lent in  your  estimation. 

Now,  when  the  boy  is  considering  how  he  will 
spend  his  money,  and  when  you  and  your  man  are 
debating  with  yourselves  and  each  other  about  the 
cost  of  the  job,  you  are  all  estimating  and  compar- 
ing values,  and  you  are  all  accepting  the  dollar,  or 
some  definite  part  of  the  dollar,  as  a  measure  or 
standard  for  determining  and  expressing  the  values 
of  different  things.  With  the  boy  it  is  perhaps  a 
question  of  spending  a  "quarter"  on  the  circus 
rather  than  for  something  he  can  keep  or  use ;  with 
the  man  it  is  a  question  whether  he  will  take  your 
job  or  a  different  one  for  somebody  else,  or  whether 
he  will  not  indulge  himself  with  a  holiday ;  with 
you  it  may  be  a  question  between  hiring  that  man 
or  some  other  man,  or  else  between  doing  the  work 
yourself  and  dispensing  with  it  altogether. 

In  these  cases,  while  the  three  persons  have 
widely  different  ends  in  view,  and  seem  to  be  influ- 
enced by  considerations  which  have  little  likeness 
to  each  other,  yet  they  all  three  are  measuring 
their  needs  and  desires  by  money,  and  are  able  to 


MONEY  27 

express  their  preferences  by  subdivisions  of  a  dol- 
lar. The  habit  of  measuring  by  money  all  that  we 
have  and  do  and  desire  is  so  universal  that  it  is 
unconsciously  resorted  to  the  moment  an  occasion 
arises  for  estimating  or  comparing  the  degrees  of 
value  we  attach  to  different  objects  of  possession 
or  pursuit,  and  such  occasions  arise  so  incessantly 
that  even  children  and  uneducated  persons  become 
skilled  in  determining  whether  a  desired  project  or 
thing  is,  or  is  not,  worth  what  it  costs.  To  the 
cases  above  supposed  the  intelligent  reader  will  be 
able,  easily,  to  add  others,  illustrating  other  phases 
of  the  functions  performed  by  money ;  but  however 
far  the  collection  and  comparison  of  facts  may  be 
carried,  all  the  inferences  from  them  will  be  found 
to  coincide  in  establishing  the  primary  functions 
of  money  to  be  these  : 

1st.  To  pass  from  one  person  to  another  in  ex- 
change for  property  or  in  recompense  for  labor  or 
services. 

2d.  To  measure  the  value  of  whatever  is  ob- 
tainable by  purchase,  hire,  or  other  form  of  money 
payment.* 

These  two  functions  of  money  characterize  it  in 
every  land,  and  have  always  characterized  it.  When 
Abraham  offered  to  buy  Ephron's  field  he  proposed 

*  Money  has  other  functions,  some  evolved  out  of  these,  others 
imposed  upon  it  by  law  or  custom,  all  of  which  will  be  considered 
hereafter,  but  for  the  present  our  apprehension  of  the  subject  will 
be  facilitated  and  kept  clear  by  confining  attention  to  what  is 
simple  and  familiar. 


28  THE  PEOPLE'S  MONEY 

to  "  pay  the  full  money  it  is  worth,"  and  when  he 
took  possession  of  his  purchase  he  paid  in  "  money 
current  with  the  merchant."  During-  the  eight  and 
thirty  centuries  intervening-  between  Abraham's 
epoch  and  ours,  money  has  come  gradually  more 
and  more  into  use,  and,  pari  passu,  it  has  become 
more  and  more  fixed  in  form  and  definite  in  value, 
but  in  all  that  time  its  functions  have  been  the 
same,  namely,  to  transfer  ownership  and  to  meas- 
ure values.  Nowadays  the  use  of  money  is  well 
nigh  universal,  and  extends  to  objects  of  which  the 
patriarch  could  form  no  conception.  By  money  we 
measure  the  value  of  all  we  sell  and  all  we  buy ; 
labor,  thought,  speech,  pleasure,  religious  oppor- 
tunities and  exercises,  sensual  gratifications,  even 
vicious  indulgences  are  priced  and  paid  for  in 
money. 

Injury  to  person,  property,  or  reputation,  even 
the  tender  affections  of  women,  and  the  precious 
life  of  parent,  husband,  or  child,  are  appraised  by 
juries  at  a  money  value.  "  Insurance  against  acci- 
dent and  death  "  means  simply  a  money  payment 
upon  the  occurrence  of  either,  while  the  pension 
laws  affix  prices  upon  life,  limb,  or  health  lost  in 
the  public  defence. 

As  an  instrument  of  purchase  and  hire,  as  a 
measure  of  value,  money,  or  one  of  its  representa- 
tives, enters  into  every  act  of  industrial  production. 
It  enters  also  into  every  commercial  transaction, 
for  since  every  purchase  is  also  a  sale,  and  since 
the  same  money  travels  from  one  to  another,  effect- 


MONEY  29 

ing  numerous  such  sales  by  which  the  products 
of  industry  are  exchanged  among  their  producers, 
money  serves  as  the  medium  of  general  exchange ; 
and  further,  since  these  exchanges  rest  upon  a 
comparison  of  respective  values,  as  measured  by 
the  money  passing  in  exchange  for  each  commod- 
ity, the  money  also  serves  as  a  measure  of  the 
value  of  the  commodities. 

Whenever  money  passes  in  exchange  for  prop- 
erty, services,  etc.,  its  value  is  presumed  to  be 
equal  to  that  of  the  thing  for  which  it  is  ex- 
changed, hence  the  amount  of  money  paid — the 
price  —  becomes  the  expression  of  the  value  of 
that  thing.  In  this  respect  a  dollar  is  as  abso- 
lutely a  measure  of  value  as  an  inch  is  a  measure 
of  length,  or  as  a  pound  is  a  measure  of  weight. 
In  many  cases,  however,  values  are  estimated  and 
expressed  in  money  terms  when  no  money  is  pres- 
ent, and  some  persons  have  found  a  difficulty  in 
understanding  how  these  can  be  accepted  as  in- 
stances of  the  measurement  of  value  by  money. 

Such  difficulty  will  disappear  when  it  is  consid- 
ered that  from  the  constant  use  of  any  standard  in 
actual  measurements  we  acquire  more  or  less  skill 
in  estimating  similar  measurements  without  apply- 
ing our  standard,  and  since  money  is  by  far  the 
most  frequently  used  of  all  standards  of  measure- 
ment, it  is  quite  natural  that  there  should  be  fixed 
in  our  minds  a  value-scale  marked  off  in  dollars 
and  fractions  of  a  dollar  sufficiently  accurate  to 
serve  ordinary  purposes.  In  these  cases,  therefore, 


30  THE  PEOPLE'S  MONEY 

while  we  may  not  actually  measure  with  money  all 
the  values  we  are  dealing  in,  our  estimate  and  ac- 
ceptance of  these  values  proceeds  wholly  from  be- 
lief in  the  accuracy  of  our  mental  value-scale,  and 
accuracy  in  this  case  means,  of  course,  conformity 
with  actual  money  values. 

But  apart  from  this,  distance  and  weights  are 
often  computed  instead  of  being  ascertained  by 
actually  traversing  the  distance  with  a  rule  or  rod, 
and  without  weighing  the  object  in  question.  The 
diameter  of  the  earth  at  the  equator,  the  distance 
to  the  moon  from  any  given  point  on  the  earth's 
surface  at  some  particular  moment  of  time,  have 
been,  and  can  always  be,  accurately  determined. 
In  such  cases  computation  alone  is  available,  since 
actual  measurement  with  rule  or  rod  is  imprac- 
ticable. The  weight  of  the  earth  has-been  ascer- 
tained, and  that  of  some  of  the  planets,  yet  no  bal- 
ance could  hold  them.  In  like  manner  one  may  ac- 
curately estimate  values  and  express  them  in  dol- 
lars, even  though  he  may  never  have  had  dollars 
enough  to  exchange  for  even  a  fraction  of  such  values. 

The  fact  is  that  money  performs  its  function  of 
measuring  values  chiefly  through  the  medium  of 
computation;  it  is  the  standard  by  reference  to 
which  we  constantly  test  and  readjust  the  value- 
scales  which  we  carry  about  in  our  minds,  very 
much  as  the  standards  of  weight  and  measurement 
kept  in  the  National  Museum  at  Washington  are 
referred  to  for  determining  or  verifying  the  accu- 
racy of  the  implements  made  for  ordinary  use. 


MONEY  31 

In  various  parts  of  the  world  money  is  of  dif- 
ferent substances  and  forms ;  but  what  gives  to 
every  form  of  money  all  the  force  it  has,  what  can 
alone  confer  upon  anything  the  power  to  pass 
unquestioned  from  hand  to  hand,  exchanging 
and  measuring  values,  is  the  confidence  and  con- 
sent of  the  people  among  whom  it  circulates. 
Imagine  this  wanting  in  any  given  case,  and  then 
conjecture,  if  you  can,  by  what  other  means  or  ex- 
pedient a  distrusted  or  discredited  currency  could 
be  maintained  as  a  medium  of  exchange  or  as  a 
measure  of  values.  It  is  true  that  in  modern  times 
and  among  civilized  nations  governments  act  for 
the  people  in  selecting  and  certifying  what  is  to 
pass  as  money,  and  in  fixing  by  law  the  values  of 
the  different  denominations  of  a  monetary  system ; 
but  except  for  the  settlement  of  contracts,  the  pay- 
ment of  debts,  and  the  discharge  of  public  dues, 
the  power  of  the  government  to  prescribe  a  cur- 
rency is  absolutely  limited  by  the  acquiescence  of 
the  people,  and  stability  in  the  purchasing  power 
of  such  currency  depends  from  day  to  day  upon 
the  continuance  of  that  acquiescence. 

In  countries  where  the  laws  do  not  prescribe 
any  particular  form  of  money,  the  money  in  use 
depends  for  its  force  entirely  upon  conventional 
recognition,  and  this  is  always  found  sufficient. 
Mere  custom,  without  the  help  of  law,  maintained 
for  ages  the  volume  and  stability  of  all  the  money 
circulating  among  the  three  hundred  million  peo- 
ple of  the  Chinese  Empire.  In  very  ancient  times 


32  THE  PEOPLE'S  MONEY 

too,  before  coinage  or  paper  money  was  invented, 
and  when  money  was  in  very  limited  use,  its  force 
as  a  measure  of  value  and  as  a  medium  of  purchase 
and  sale,  was  necessarily  derived  from  usage  alone. 

The  passage  already  referred  to,  about  Abra- 
ham's purchase,  shows  that  more  than  three 
thousand  seven  hundred  years  ago,  the  ownership 
of  property  was  habitually  transferred  upon  pay- 
ment of  "the  full  money  it  is  worth,"  and  also, 
that  the  medium  of  such  payments  was  "  current 
money  with  the  merchant." 

To  facilitate  interchange  of  values  and  to  meas- 
ure such  values  may  be  regarded  as  the  natural 
functions  of  money,  but  in  most  civilized  countries 
it  has  another  function,  which  is  artificial  and 
established  by  law,  viz.,  that  of  a  legal  tender  in 
payment  of  taxes  and  in  discharge  of  debt.  Debt 
is  a  product  of  civilization,  it  can  arise  only  where 
credit  exists  and  where  law  prevails,  because 
where  those  conditions  are  wanting  men  do  not 
trust  each  other  and  hence  there  are  neither  debt- 
ors nor  creditors,  for  manifestly  no  one  can  be  a 
debtor  unless  others  have  trusted  him.  Taxation  is 
also  peculiar  to  civilization,  it  is  the  civilized  and 
orderly  form  of  levying  contributions  for  the  sup- 
port of  the  state ;  in  uncivilized  countries  rulers 
exact  tribute  in  any  form  of  value,  sometimes  even 
in  the  form  of  personal  service. 

Since,  therefore,  taxes  and  debt  exist  only  under 
conditions  which  presuppose  an  organized  society 
and  the  prevalence  of  law,  we  find  money  invested 


MONEY  33 

with  the  functions  of  a  legal  tender  only  by  positive 
enactment.  As  the  law  defines  debt  and  enforces 
its  payment,  the  law  must  say  what  is  sufficient 
payment;  as  the  law  levies  taxes  and  requires 
them  to  be  paid  in  money,  the  law  must  instruct 
the  citizen  as  to  what  the  medium  of  payment  is  to 
be.* 

It  is  evident  that  popular  confidence  and  consent 
are  not  in  any  degree  necessary  to  the  support  of  a 
legal-tender  currency.  Within  its  sphere  of  dis- 
charging debts  and  satisfying  the  demands  of  the 
government,  a  legal-tender  currency  exists  by  force 
of  law  alone. 

Putting  together  the  results  of  our  inquiries  up 
to  this  point,  we  get  this  definition : 

Money  is  a  conventionally  recognized  and  gen- 
erally accepted  medium  of  exchange  and  measure 
of  value;  it  is  also,  by  force  of  law,  a  medium 
for  the  settlement  of  contracts  and  debts,  and  for 
the  discharge  of  public  dues. 

Our  money  consists  of  gold  coins,  gold  certifi- 
cates, silver  coins,  silver  certificates,  United  States 
notes  (greenbacks),  coin  notes,  and  National  Bank 
notes.  A  given  amount  in  any  one  of  these  dif- 

*  It  is  not  necessary  that  the  same  form  of  money  shall  be 
prescribed  in  both  cases.  A  government  may  make  one  thing 
receivable  in  payment  of  taxes,  and  quite  another  thing  legal 
tender  in  payment  of  debt.  Thus,  until  1878,  only  gold  coins  or 
gold  certificates  were  receivable  in  payment  of  duties  on  imports 
in  the  United  States,  while  United  States  notes  have  always  been 
legal  tender  for  all  debts,  and  National  Bank  notes  are  legal  ten- 
der only  for  debts  to  any  National  Bank. 
3 


34:  THE  PEOPLE'S  MONEY 

ferent  kinds  of  money  is  precisely  equivalent  to  the 
same  amount  in  every  one  of  the  other  kinds,  so 
far  as  concerns  power  to  buy,  to  hire,  or  to  com- 
mand gratifications.  While  equal  in  money  force, 
however,  these  different  currencies  are  very  unlike 
in  what  is  called  intrinsic  value,  which  is  the  value 
of  the  material  of  which  they  consist,  apart  from 
the  money  character  imparted  to  each  by  coinage 
or  otherwise. 

We  all  know  that  the  gold  in  an  eagle  is  worth 
more  than  the  silver  in  ten  standard  dollars,  and 
much  more  than  that  in  twenty  half-dollars,  forty 
quarters,  etc.,  while  bank-notes  and  greenbacks 
have  but  little  intrinsic  value,  yet  it  is  a  matter  of 
daily  experience  that  ten  dollars  in  one  of  these 
forms  is  precisely  equivalent,  for  the  ordinary 
purposes  of  money,  to  the  same  sum  in  any  other 
form  ;  that  is,  all  our  dollars  are  of  equal  money 
force. 

Up  to  1888  there  was  a  notable  exception  to  this 
uniformity  of  value  among  dollars.  The  trade 
dollar,  then  existing  by  authority  of  our  coinage 
laws,  would  not  buy  as  much  as  a  standard  dollar, 
nor  as  much  as  two  halves,  four  quarters,  or  ten 
dimes,  although  it  contained  more  silver  than 
those,  and  therefore  must  have  been  intrinsically 
more  valuable.  Trade  dollars  did  not  circulate  as 
money,  they  did  not  pass,  hence  they  were  not 
money,  but  commodities,  like  medals  or  silver 
ornaments.  It  is  the  same  now  with  foreign 
money.  Mexican  dollars  are  intrinsically  more 


MONEY  35 

valuable  than  ours,  but  since  they  do  not  pass  here, 
they  are  not  money  among  us.  Foreign  gold  and 
silver  coins,  Bank  of  England  notes,  etc.,  though  of 
undoubted  value  are  "uncurrent."  It  is  evident, 
therefore,  that  money  depends  for  its  force  as  a 
medium  of  exchange  and  a  measure  of  value  upon 
something  besides  its  form  and  the  quantity  and 
kind  of  material  out  of  which  it  is  made,  and  that 
the  character  of  money  is  not  conferred  upon  a 
coin  by  intrinsic  value  only,  nor  upon  a  note  or  bill 
by  fully  secured  representative  value,  but  coins  and 
notes  and  bills  become  money  only  when  invested 
with  that  character  by  some  power  competent  to 
give  them  general  currency  in  the  community. 

The  next  inquiry  is,  what  is  the  source  of  the 
power  to  command  persons  and  things  that  dis- 
tinguishes money  from  other  objects  possessing 
value  ?  The  answer  is,  the  source  of  this  power  is 
threefold :  First,  there  is  the  industrial  energy  of 
the  age,  already  described,  which  compels  every 
one  to  get  money,  as  the  only  means  whereby  he 
may  acquire  what  he  needs  or  desires.  Secondly, 
there  is  debt,  which  forces  every  debtor  to  obtain 
money  wherewith  to  discharge  both  interest  and 
principal ;  and  thirdly,  there  is  taxation,  which 
compels  every  taxpayer  to  procure  money  for  pay- 
ment into  some  treasury.  These  needs  for  money, 
one  or  all,  are  felt  by  every  one,  hence  no  one  can 
afford  not  to  procure  money  at  every  opportunity, 
whether  it  be  by  giving  services,  by  trading,  or  by 
selling  what  he  produces. 


36  THE  PEOPLE'S  MONEY 

Since  money  alone  is  universally  accepted  in 
exchange  for  whatever  is  to  be  disposed  of,  every- 
body knows  that  it  is  with  money  alone  that  he 
may  buy  what  he  likes,  hence  he  will  accept  only 
money  for  what  he  has  to  sell,  and  since  the  need 
to  sell  is  quite  as  coercive  as  the  need  to  buy,  he 
who  has  money  may  command  anything  that  is  for 
sale.  So,  too,- the  need  of  being  hired  is  quite  as 
pressing  as  the  need  to  hire,  hence  money  com- 
mands services  as  well  as  things. 

The  compulsion  of  taxation  and  of  debt  applies 
almost  universally,  so  that  the  industrial  need  of 
money,  imperative  of  itself,  is  augmented  by  the 
pressure  of  taxation,  and  by  the  incessant  accre- 
tion of  interest.  So  universal  are  these  forces, 
compelling  men  in  all  conditions  of  life  to  ob- 
tain money,  that  there  is  a  universal  demand  for  it, 
and  he  who  has  it  possesses  a  wide  choice  as  to 
how  he  shall  spend  it,  while  neither  property  nor 
commodities,  services  nor  the  creations  of  intellect, 
can  procure  desired  objects  unless  first  parted  with 
for  money. 


CHAPTEE   IV. 

NATUEAL  BASIS  OF  MONEY 

In  the  preceding*  chapter  money  was  shown  to 
have  certain  well-defined  functions,  of  which  some 
rest  upon  conventional  assent  and  acceptance  and 
others  result  from  the  operation  of  statute  law. 
We  shall  see  hereafter  what  is  the  scope  and  limit 
of  the  legal-tender  force  with  which  money  is  en- 
dowed by  law,  also  how  and  why  such  force  is 
necessary  under  our  present  social  and  industrial 
conditions. 

It  is,  however,  with  the  more  ancient  and  univer- 
sal force  of  money  that  we  are  at  present  con- 
cerned, that  force  by  which  it  had  been  serving  as 
a  medium  of  exchange  and  a  measure  of  value  for 
centuries  before  social  and  industrial  conditions  in 
any  part  of  the  world  either  required  or  suggested 
the  existence  of  a  legal  tender.  In  investigating 
the  natural  force  of  money,  as  developed  in  the 
performance  of  those  natural  functions,  we  may  be- 
gin by  inquiring  in  what  way  it  comes  about  that 
there  is  such  a  thing  as  money  at  all,  and  how  the 
assent  and  acceptance  of  the  people  confer  upon 
it  the  power  to  perform  its  peculiar  and  important 
functions. 


38  THE  PEOPLE'S  MONEY 

Money  is  an  indigenous  growth  of  human  so- 
ciety, arising  out  of  the  needs  of  mankind.*  The 
inventive  faculty  of  the  race  contrived  the  use  of 
money  in  trade,  just  as  it  contrived  the  use  of 
wheels  in  transportation.  Both  contrivances  have 
been  developed  from  rude  beginnings  into  the  per- 
fect servants  of  specialized  industry  that  they  are 
to-day.  The  development  of  money  seems  to  have 
proceeded  slowly  at  first,  under  no  impulse  but 
that  of  urgent  need,  and  according  to  no  method 
but  what  arose  out  of  attrition  and  the  demands  of 
trade.  For  ages  different  forms  of  money  pre- 
vailed in  different  parts  of  the  world  with  but  little 
change,  and  it  is  only  in  comparatively  modern 
times  that  these  forms  have  been  improved  by  the 
intelligent  application  of  observation  and  experi- 
ence, and  that  all  races  and  nations  have  come 
into  harmony  as  to  the  substance  and  form  of  their 
money. 

While  this  statement  possesses  no  novelty,  it  is 
introduced  here  because  it  underlies  the  only  true 
doctrine  of  money,  and  because  imaginings  to  the 
contrary  have  led  some  good  men  astray,  and  are 
still  tending  to  produce  errors  in  our  legislation. 

"What  history  tells  us  about  the  beginning  and 
growth  of  money  is  very  meagre  and  very  vague, 
but  such  as  it  is,  it  goes  to  show  that  the  use  of 
money  is  an  unfailing  sign  of  the  presence  of  some 

*  Aristotle  says:  "  The  use  of  money  was  from  necessity  de- 
vised;" and  again,  "  devised  from  the  necessity  of  mutual  ex- 
change." 


NATUEAL  BASIS  OF  MONEY  39 

degree  of  civilization,  and  that  as  civilization  has 
progressed  money  has  become  more  definite  in 
form  and  each  form  more  precise  and  constant  in 
value.  Numerous  substances  have  served  as  mon- 
ey at  different  times  and  in  different  places,  which 
shows  that  the  need  of  money  was  felt  and  that 
efforts  were  made  to  supply  that  need  before  the 
qualities  of  any  particular  substance,  such  as  gold 
or  silver,  suggested  the  idea  of  that  substance  be- 
ing made  into  money.* 

It  seems  to  be  a  law  of  human  development  that 
advancing  communities  must  grope  in  the  dark 
a  long  time  before  they  find  precisely  what  they 
are  looking  for,  whether  it  be  in  government,  in 
morals,  or  in  social  conveniences;  they  must  try 
many  unfit  things  before  they  get  what  is  most  fit 
for  their  purpose. 

The  expedients  resorted  to  in  primitive  social 
conditions  for  supplying  that  need,  which  we  now 

*  There  are  persons  who  imagine,  without  a  shadow  of  historic 
authority  for  it,  that  mankind,  finding  gold  and  silver  in  the 
earth,  and  being  impressed  with  the  beauty,  the  durability,  and 
the  divisibility  of  these  metals,  began  to  cast  about  for  uses 
to  which  they  might  be  applied,  and  among  other  things  hit 
upon  the  idea  of  using  them  for  money.  Now  the  fact  is,  the 
need  of  money  was  felt  before  gold  and  silver  became  applicable 
to  its  satisfaction,  and  this  need  was  supplied  by  the  use  of  other 
substances,  not  only  in  places  where  these  metals  were  unknown, 
but  also  in  places  where  they  abounded.  History  is  full  of  evi- 
dence that  in  remote  antiquity  gold  and  silver  were  esteemed  for 
their  beauty,  and  were  made  into  ornaments,  household  utensils, 
and  vessels  consecrated  to  religious  uses,  but  the  evidence  as  to 
the  employment  at  that  time  of  either  of  them  as  money  is  very 
questionable. 


40  THE  PEOPLE'S  MONEY 

recognize  as  a  need  for  money,  were  only  different 
forms  in  which  men  differently  situated  tried  to 
materialize  one  and  the  same  idea. 

The  idea  was  the  same  everywhere,  because  the 
need  was  essentially  the  same  everywhere,  and  the 
differences  among  the  many  forms  in  which  this 
common  idea  became  embodied  resulted  from 
varying  limitations  of  knowledge,  or  from  differ- 
ences of  social  condition  or  of  geographical  situ- 
ation, and  most  frequently,  probably,  from  the  ir- 
regular occurrence  of  natural  substances  suitable 
for  use  as  money.  The  idea  which  found  expres- 
sion in  money  was  begotten  of  the  need  of  having 
a  medium  of  exchange,  something  that  would  be 
generally  valued  alike  by  everybody,  and  the  first 
use  of  money  must  have  been  to  facilitate  barter, 
because  barter  was  the  only  method  of  exchange 
or  trade  known,  or  even  practicable,  before  money 
came  into  general  use.* 

Money  was  probably  at  the  very  first  used  only 
as  a  make-weight  in  bartering  and  trading ;  the 
"  boot,"  as  we  call  it  now.  It  may  be  imagined 
that  when  bartering  and  "trading"  became  close, 

*  Barter  is  the  direct  exchange  of  one  commodity  for  another 
— a  horse  for  a  suit  of  armor,  a  yoke  of  oxen  for  a  piece  of  land, 
a  sheep  for  a  spear  or  a  sword.  It  is  limited  to  two  persons,  and 
involves  a  double  appraisement  by  each.  Each  appraises  what 
he  offers  and  what  is  offered  to  him  in  exchange  for  it. 

This  form  of  trading  is  still  practised,  to  some  extent,  as  in 
"swapping  horses,''  etc.,  and  its  antiquity  is  shown  by  the  fact 
that  such  a  transaction  is  to  this  day,  in  common  speech,  called 
by  the  distinctive  appellation  of  "a  trade." 


NATURAL.  BASIS  OF  MONEY  41 

some  article  of  general  acceptability  was  added  to 
the  less  valuable  of  the  two  things  under  exchange, 
so  as  to  equalize  the  values  received  by  the  parties 
to  the  barter.  Naturally  the  best  substance  for 
this  would  be  one  in  general  use  and  easily  divisi- 
ble without  loss  of  value,  and  also  of  rare  occur- 
rence as  a  natural  product,  hence  salt,  an  article  of 
universal  consumption ;  iron,  the  material  of  weap- 
ons ;  copper,  the  material  of  armor ;  silver,  the  ma- 
terial of  household  utensils,  of  personal  ornament, 
and  of  religious  vessels ;  gold,  the  material  of  royal 
and  female  adornment,  came  into  use  as  make- 
weights or  "boot."  All  these  must  have  had  a 
value  of  their  own  in  barter ;  *  they  were  all  cap- 
able of  subdivision  by  weight ;  they  were  wanted 
everywhere;  hence  they  would  be  naturally  re- 
sorted to  in  order  to  facilitate  or  promote  other 
transactions  by  "  evening  up  "  the  two  sides  of  the 
"trade." 

It  was  probably  a  long  time  before  this  primi- 
tive stage  was  passed,  but  at  length  men  must  have 
perceived  that  if  money  could  stand  for  a  part  of 
the  value  of  a  thing,  it  could  stand  for  its  whole 
value,  and  thus  money  in  one  or  the  other  of  its 
primitive  forms  came  to  be  a  measure  of  value,  the 
particular  form  in  each  case  being  determined  by 
the  two  factors  of  accessibility  and  acceptability 
(supply  and  demand)  at  the  place  of  use.  The  use 

*  John  Law  appears  to  have  originated  the  idea  that  articles 
used  as  money  must  have  had  a  value  in  barter,  but  he  did  not 
see  further  how  this  value  became  a  measure  of  value. 


42  THE  PEOPLE'S  MONEY 

of  money  in  trade  or  barter  was  probably  confined 
for  ages  to  bazaars,  fairs,  and  great  assemblies, 
like  those  of  the  Olympic  and  Isthmian  games, 
where  merchants  carried  it,  employed  it  in  their 
traffic,  and  no  doubt  eventually  got  most  of  it  back 
again,  after  it  had  made  the  rounds  in  settling 
trades  all  over  the  place. 

That  the  use  of  money  was  thus  slowly  and 
gradually  evolved  may  be  inferred  as  a  corollary 
from  the  proposition  that  the  function  of  money  is 
to  serve  as  a  medium  of  exchange  and  a  measure 
of  value.  This  proposition  presupposes  a  stock  of 
exchangeable  things,  but  manifestly  in  primitive 
states  of  society,  where  industry  is  as  yet  undevel- 
oped, and  very  little  of  it  at  all  specialized,  the 
stock  of  such  things  is  small,  and  therefore  the 
scope  of  such  a  medium  would  be  extremely  lim- 
ited; hence,  also,  conversely,  money  would  be  in 
too  limited  demand  to  become  generally  current. 
It  is  probable,  therefore,  that  money  came  more 
and  more  into  use  and  gradually  increased  in  vol- 
ume, and  in  the  value  of  the  material  employed, 
only  as  each  community  progressed  in  civiliza- 
tion, whereby  both  the  wants  and  the  productions 
of  individuals  became  diversified.  As  the  volume 
of  money  expanded,  under  the  influence  of  the  ex- 
panding use  for  it,  its  circulation  became  more 
rapid,  for  the  greater  activity  in  trade  would,  of 
course,  require  more  and  more  frequently  the  in- 
tervention of  a  medium  of  exchange. 

The  activity  of  traffic,  increasing  from  century  to 


NATUEAL  BASIS  OF  MONEY  43 

century,  afforded  more  frequent  opportunities  and 
more  numerous  inducements  to  employ  money 
advantageously  until,  amid  the  countless  indus- 
tries and  dealings  of  our  day,  it  moves  in  a  million 
circuits,  of  which  the  axes  traverse  the  plane  of 
society  in  every  direction,  and  cross  each  other  at  a 
thousand  points.  During  the  period  of  this  devel- 
opment, from  the  point  at  which  money  was  first 
thrown  in  as  "  boot "  to  close  a  "  trade,"  down  to 
the  point  at  which  we  now  find  it,  it  gradually 
came  also  to  be  regarded  as  a  measure  of  value. 
The  origin  and  growth  of  this  use  of  money  con- 
formed to  the  natural  law  of  social  development, 
and  everywhere  history  shows  a  progression  of 
some  sort  as  to  the  substance  used  for  money,  con- 
sidered as  a  measure  of  value. 

In  every  country,  and  in  every  race,  there  was  a 
similar  progression,  beginning  with  rude  materials 
of  low  intrinsic  value,  and  advancing  toward  finer 
materials  of  higher  intrinsic  value.*  Only  a  natu- 
ral law  could  have  produced  so  remarkable  a  uni- 
formity as  history  records  in  the  monetary  prog- 
ress of  mankind.  The  same  features,  the  same 

*  The  old  Latin  term  "pecunia"  is  generally  accepted  as  evi- 
dence that,  in  the  infancy  of  that  language,  cattle  served  as 
money.  Afterward,  among  the  same  people,  the  metals  came 
into  use,  iron  first,  tin  in  some  places,  then  copper,  then  silver, 
and  lastly  gold. 

"Moneta,"  from  \vhich  our  term  money  comes,  was  of  much 
later  origin,  and  signifies  coined  or  artificial  money,  as  distin- 
guished from  what  we  may  call  natural  money. 

The  French  language,  in  its  two  words  "  1'argent "  and  "la 
monnaie, "  preserves  this  distinction. 


44  THE  PEOPLE'S  MONEY 

sequences,  are  repeated  over  and  over  again  in 
widely  separated  communities,  cut  off  from  inter- 
course with  one  another,  and  subjected  to  very 
widely  differing1  influences,  due  to  their  several 
locations,  necessities,  and  opportunities. 

There  must,  therefore,  be  a  natural  law  governing 
this  progression ;  a  natural  law  which  tends  always 
to  establish  as  the  standard  of  value  the  material  of 
highest  intrinsic  value  available  at  the  time.*  If 
there  is  such  a  natural  law,  it  must  be  still  opera- 
tive, and  to  its  effect  we  may  attribute  the  steadfast 
movement  of  modern  nations  toward  silver  as  the 
general  standard  of  value,  when  copper  ceased  to 
be  adequate,  and  now  toward  gold,  when  silver  is 
no  longer  adequate. 

*We  shall  see  hereafter  how  such  availability  depends  nec- 
essarily upon  range  of  demand. 


CHAPTEE  V. 

INDUSTRIAL  BASIS  OF  MONEY 

Money  being  an  invention  of  mankind,  perfect- 
ed by  experience  and  skill,  its  universal  use  at 
the  present  day  results  from  the  universality  of  in- 
dustry, and,  in  turn,  modern  industry  depends  for 
its  daily  and  hourly  life  upon  the  uninterrupted 
circulation  of  money.  Whatever,  therefore,  may 
have  been  the  origin  of  money  ;  whatever  function 
it  may  have  had  in  the  distant  past,  or  in  lands 
where  industry  is  languid,  its  present  use  and 
function  among  us  are  matters  of  such  paramount 
interest  and  importance  that  beside  them  historical 
inquiries  are  insignificant. 

The  people  of  the  United  States  live  mainly  by 
diversified  industry ;  each  form  of  industry  de- 
pends for  existence  upon  exchanging  its  products 
for  the  products  of  other  forms  of  industry,  and 
money  supplies  the  only  medium  of  exchange  that 
has  so  far  been  found  at  all  adequate  to  the  vital 
need  of  sustaining  incessant  production  on  the  one 
hand,  and  supplying  incessant  consumption  on  the 
other.  Trade  exchanges  one  product  of  industry 
for  another,  as  barter  does ;  but  in  barter  this  ex- 
change is  direct ;  in  trade  it  is  effected  by  a  pro- 


46  THE  PEOPLE'S  MONEY 

cess  more  or  less  circuitous.  Labor  is  given  for 
money,  then  the  money  is  given  for  food.  The 
labor  in  that  way  becomes  eventually  exchanged 
for  food,  but  only  through  the  use  of  money.  The 
seller  of  the  food  may  give  the  money  for  other 
labor,  then  the  first  laborer  and  the  second  laborer 
have  exchanged  their  labor,  one  with  another,  but 
since  that  exchange  has  been  effected  by  money, 
neither  knows  of  the  exchange  so  brought  about, 
and  neither  bestows  any  thought  upon  it.  Each  is 
interested  only,  first,  in  getting  as  much  money  as 
he  can  for  his  labor,  and  secondly,  in  buying  all  he 
can  with  the  money,  i.e.,  making  it  "go  as  far  as 
possible." 

Without  money  trade  could  never  have  expanded 
beyond  the  limits  of  barter;  without  trade,  in- 
dustry could  never  have  become  specialized ;  that 
which  has  been  called  (clumsily  enough)  the  div- 
ision of  labor,  could  never  have  taken  place.  In- 
dustry, therefore,  depends  upon  money  as  a  me- 
dium for  the  exchange  of  its  diverse  products,  and 
at  the  present  day,  in  civilized  countries,  money 
is  assisted  in  this  office  by  credit  in  various  forms. 
The  use  of  money  as  a  medium  of  exchange  of  the 
products  of  industry,  brings  into  play  also  its 
functions  as  a  measure  of  value. 

The  laborer  gets  a  dollar  for  ten  hours'  labor, 
and  spends  it  at  his  grocer's  ;  the  grocer  pays  this 
dollar,  with  another,  making  two  dollars,  to  his 
clerk  for  ten  hours'  services.  Here  the  laborer  has 
given  ten  hours'  labor  for  exactly  what  the  clerk 


INDUSTRIAL  BASIS  OF  MONEY  47 

earns  by  five  hours'  labor,  showing  that  the  clerk's 
labor  is  worth  just  twice  as  much  as  the  laborer's. 
The  dollar,  in  passing  from  one  of  these  two  men 
to  the  other,  has  measured  the  value  of  their  labor, 
and  although  neither  may  know  that  the  identical 
dollar  that  came  from  one  went  to  the  other,  yet, 
as  all  dollars  are  of  equal  value,  each  knows  full 
well  how  his  labor  compares  in  value  with  that  of 
the  other.  Then,  also,  each  knows  how  his  labor 
compares  in  value  with  the  things  for  sale  in  the 
grocery ;  one  knows  what  he  can  buy  there  for  a 
whole  day's  labor,  the  other  knows  that  he  can  buy 
precisely  the  same  things  for  a  half-day's  labor. 
This  knowledge  guides  each  of  these  men  in  his 
contracts  for  hire,  and  in  his  scale  of  living,  while 
similar  knowledge  guides  all  other  men,  not  only 
in  their  earnings  and  expenses,  but  in  all  their 
trading  and  dealing.  Every  transaction  involves 
an  estimation  and  a  comparison  of  values. 

Value  is  a  relation,  and  more  than  that,  it  is  a 
compound  relation.  It  is  the  relation  between  a 
human  desire  and  the  object  of  that  desire  on  the 
one  hand,  and  on  the  other,  it  is  a  relation  between 
that  object  and  the  desire  of  its  possessor  with 
respect  to  it. 

At  every  point  throughout  the  industrial  world 
the  opposing  desires  and  opinions  of  buyers  and 
sellers,  the  conflict  of  interests  and  purposes  as  to 
the  disposition  and  value  of  labor  services  and 
commodities,  create  an  incessant  contention,  out  of 
which,  and  by  means  of  which,  definite  results  as 


48  THE  PEOPLE'S  MONEY 

to  value  are  obtained,  and  these  results  are  ex- 
pressed under  the  designation  of  price,  in  denom- 
inations of  money.  The  prices  of  wheat,  cotton, 
iron,  tobacco,  petroleum,  etc.,  are  established  in 
this  way;  each  article  fluctuates  in  price  as  the 
buyers  or  the  sellers  of  it  preponderate  in  effective 
force,  and  these  in  turn  are  influenced  in  their  esti- 
mates of  value  and  in  pertinacity  of  opinion  by 
their  knowledge,  or  by  what  they  suppose  to  be 
their  knowledge,  or,  perhaps,  simply  by  their 
guesses,  as  to  the  relation  between  the  supply 
of,  and  the  demand  for,  the  particular  article  in 
which  they  deal. 

Prices  are  always  expressed  in  money,  and 
values  are  estimated  in  money,  hence  we  are  ac- 
customed to  regard  price  and  value  as  identical, 
but  they  are  not  so,  for  price  is  only  the  exponent 
of  estimated  value. 

The  price  of  an  article  comes  nearest  to  its  value 
when  it  reflects  an  appraisement  established  by 
the  concurrence  of  buyers  and  sellers ;  but  as  this 
concurrence  is  effected  only  by  incessant  conflict 
and  contention,  the  point  of  ultimate  concurrence 
varies  incessantly,  while  values  change  less  fre- 
quently; hence  the  price  of  a  commodity  may 
fluctuate  daily,  while  its  changes  of  value  would 
about  conform  to  the  mean  of  these  daily  fluctua- 
tions. 

Since  money  is  ordinarily  the  only  measure  of 
value  generally  accessible,  since  trade  depends  at 
every  turn  upon  measuring  values  in  order  to  com- 


INDUSTEIAL  BASIS  OF  MONEY  49 

pare  them,  and  since  a  comparison  of  values  is 
essential  to  the  exchange  of  the  products  of  in- 
dustry, and  since,  finally,  industry,  diversified  and 
specialized  as  it  is  among*  us,  exists  from  day  to 
day,  even  from  hour  to  hour,  only  by  means  of  an 
exchange  of  products  based  upon  relative  values, 
it  follows  necessarily  that  industry,  and  all  who 
live  by  industry,  have  a  vital  interest  in  money 
regarded  as  a  measure  of  value.  They  depend 
upon  it  absolutely. 

Now,  whatever  is  depended  upon  as  a  measure 
of  anything,  must  itself  be  constant  and  unchang- 
ing in  respect  to  the  quality  which  it  is  to  meas- 
ure. A  measure  of  length  must  not  be  subject  to 
linear  contraction  and  expansion ;  a  measure  of 
weight  must  not  be  subject  to  changes  in  its  own 
weight ;  a  measure  of  time  must  be  chronometric- 
ally  accurate ;  a  measure  of  force  must  never  show 
variable  results  under  identical  conditions  ;  hence 
money,  as  a  measure  of  value,  should  itself  be  free 
from  variation  in  value.*  Money  that  fluctuates  in 
value  misleads  those  who  depend  upon  it  to  meas- 
ure other  values,  themselves  fluctuating,  and  since 
all  persons  engaged  in  productive  and  commercial 
industry,  all  who  buy  and  all  who  sell,  must  inces- 
santly depend  upon  using  money  as  a  measure 

*  In  speaking  here  of  the  value  of  money,  what  is  meant  is  the 
intrinsic  or  conventional  value  of  the  coins  or  notes  which  consti- 
tute the  money  of  any  given  community.  In  the  financial  arti- 
cles of  newspapers,  the  term  value  of  money  is  habitually  used 
to  express  the  rate  of  interest  for  loans.  This,  of  course,  is  quite 
another  matter. 
4 


50  THE  PEOPLE'S  MONEY 

and  gauge  of  fluctuating  values,  it  follows  that  all 
such  persons  are  misled,  to  their  injury,  when 
money  is  not  fixed  in  its  own  value. 

To  sum  up  this  chapter,  it  may  be  said  that  in- 
dustry depends  upon  money  as  a  medium  of  ex- 
change ,•  that  to  serve  this  purpose,  money  must  be 
also  a  measure  of  value,  and  that  as  a  measure  of 
value  it  should  be  itself  unchangeable  in  value. 
Unless  these  conditions  exist,  industry  will  be- 
come disordered,  and  all  persons  will  suffer  who 
are  dependent  upon  industry ;  which  means,  prac- 
tically, all  the  people  of  the  United  States. 


CHAPTEE  VI 

LAW  AS  A  BASIS  OF  MONEY 

We  have  now  ascertained  the  ordinary  functions 
of  money ;  we  have  seen  that  its  use  arose  by  force 
of  natural  laws,  as  the  use  of  wheels  and  the  use  of 
language  arose ;  that  industry  is  dependent  upon 
it,  both  as  a  medium  of  exchange  and  as  a  measure 
of  value,  and  that  to  serve  these  purposes  money 
must  itself  be  first  definite  in  value,  and,  more- 
over, unchangeable  in  value.  Manifestly,  the  next 
point  to  be  considered  is,  how  is  money  invested 
with  a  definite  value,  and  then  how  is  that  value 
preserved  against  change  ? 

Definiteness  of  value  depends  upon  definiteness 
of  material  and  form;  permanency  of  value  de- 
pends upon  continuous,  intelligent  regulation  as  to 
material  and  form.  These  things  can  be  accom- 
plished in  the  highest  degree  only  by  law;  not 
natural  law  alone,  because  natural  law  merely  sup- 
plies general  principles ;  the  practical  application 
of  these  principles  to  the  purposes  of  society  must 
be  accomplished  by  human  law — the  excellence 
of  the  human  laws  affecting  money  being,  how- 
ever, always  proportioned  to  the  degree  in  which 
they  conform  to  the  principles  of  natural  law. 


52  THE  PEOPLE'S  MONEY 

In  communities  where  society  has  not  yet  reached 
a  degree  of  development  which  brings  it  under 
settled  government  and  written  law,  local  condi- 
tions and  ideas  bring  about,  in  process  of  time,  a 
general  concensus  of  the  people  as  to  the  form  and 
value  of  the  money  best  suited  to  their  use,  and 
what  is  thus  evolved  is  afterward  maintained  by 
custom ;  but  when  government  is  perfected  these 
matters  are  more  fully  provided  for  by  law.  De- 
ferring for  the  present  all  consideration  of  the 
constitutional  and  statutory  sanction  enjoyed  by 
the  money  we  use,  let  us  look  at  the  genesis  of  the 
relation  between  money  and  the  law.* 

In  the  progress  of  society  from  barbarism  to  civ- 
ilization, and  while  government  was  being  devel- 
oped from  its  rude  beginning  in  patriarchal  or 
military  chieftainship  into  what  it  is  to-day  in 
the  most  advanced  countries  of  the  world,  a  highly 
organized  institution,  recognizing  the  varied  in- 
terests of  the  community  and  providing  for  the 
general  welfare  of  the  people — in  the  course  of 
this  development  what  were  once  prerogatives 
of  the  sovereign,  arbitrarily  exercised,  have  been 

*  Money  was  in  use  before  there  were  any  laws  concerning  it, 
hence  the  first  edicts  on  the  subject  must  have  recognized  what- 
ever money  was  then  and  there  current,  thus  establishing  the 
proposition  that  in  respect  to  money  the  function  of  civil  law  is 
to  accept,  preserve,  and  apply  the  principles  disclosed  by  the 
operation  of  natural  laws.  The  earliest  laws  on  this  subject,  of 
which  there  is  any  record,  related  to  money  measures  or  to  coin- 
ages already  in  general  use,  and  history  shows  that  the  regula- 
tion of  money  has  always  been  regarded  as  one  of  the  preroga- 
tives of  sovereignty. 


LAW  AS  A  BASIS  OF  MONEY  53 

from  time  to  time  limited  and  defined  by  law  or 
revolution,  so  that  they  are  now  obligatory  func- 
tions of  the  state,  and  government  has  been  con- 
stantly enlarging  the  sphere  of  its  activity  and 
increasing  the  number  of  its  functions. 

One  of  the  duties  thus  devolved  upon  modern 
government  is  that  of  selecting  the  material  of 
money,  prescribing  its  forms,  and  fixing  its  value, 
and  it  is  in  this  way,  and  under  these  conditions 
that  law  is  a  basis  of  our  money.  If  the  law  did 
not  prescribe  the  material  and  form  of  our  money ; 
if  the  law  did  not  establish  a  monetary  unit  for 
measuring  values,  we  should  have  to  seek  these 
through  some  other  means  less  effectual  for  the 
purpose,  and  it  should  be  observed  that  this  state- 
ment is  not  inconsistent  with  the  doctrine  that 
money  has  its  primary  basis  in  natural  laws,  and 
that  it  has  existed  and  may  exist  independently 
of  any  statute,  edict,  or  decree  emanating  from 
civil  authority. 

Although  it  may  at  first  seem  superfluous  for  the 
law  to  concern  itself  with  what  existed  before  there 
were  law-governed  communities,  and  what  would 
continue  to  exist  if  there  were  neither  parliaments 
nor  congresses,  mints  nor  public  treasuries,  it  is 
not  so.  Roads,  bridges,  and  ferries  have  been 
constructed  and  used  before  there  were  laws  pro- 
viding for  their  establishment  and  maintenance, 
but  civilization  requires  that  in  populous  com- 
munities these  should  be  provided  and  regulated 
by  the  public  authority.  So  it  is  with  money. 


54  THE  PEOPLE'S  MONEY 

That  which  suffices  for  barbarous  nations  would 
not  satisfy  those  that  are  civilized,  and  in  our  day 
the  uses  of  money  are  much  more  important  and 
diversified  than  they  have  ever  been  before. 

It  is  obvious  that  as  respects  taxes  and  debts 
there  must  be  some  medium  of  payment  prescribed 
by  the  law  that  imposes  the  one  and  sanctions  the 
other,  for  since  the  law  undertakes  to  enforce  pay- 
ment in  these  cases  the  law  alone  can  fix  what 
shall  constitute  such  payment.  But,  one  may  ask, 
why  should  the  law  presume  to  say  what  I  must 
take  in  payment  for  my  labor,  my  talents,  my 
property,  or  my  land  ?  Why  should  I  not  be  free 
to  dispose  of  these  as  I  like,  as  is  done  where  only 
natural  law  prevails  ?  The  answer  to  this  is,  that 
every  one  is  free  to  do  so,  but  since  ordinarily 
none  exercise  that  freedom  because  it  is  more  con- 
venient to  accept  the  money  the  government  pro- 
vides, there  is  no  stock  of  any  other  money  in  the 
community.* 

It  may  be  thought  hastily  that  one  need  not 
dispose  of  his  labor,  etc.,  at  all  unless  he  is  satis- 
fied with  the  money  provided  by  law,  but  this  is 
not  true  in  a  practical  sense,  in  our  day  and  coun- 
try. Here  he  who  lives  by  daily  employment  is 
absolutely  dependent  upon  disposing  of  his  labor, 
or  the  products  of  his  brain,  day  by  day.  If  one 

*  In  countries  where  there  are  no  bridges  travellers  generally 
find  roads  leading  to  fords,  but  when  the  bridge  is  built  these 
roads  cease  to  be  used  and  become  obliterated  and  thereafter 
travellers  must  use  the  bridge. 


LAW  AS  A  BASIS  OF  MONEY  55 

is  a  trader,  and  has  his  capital  in  goods,  he  must 
sell  to  keep  his  customers  and  to  realize  the  prof- 
its necessary  to  his  support.  The  farmer  must  sell 
such  of  his  products  as  he  cannot  use,  in  order 
to  buy  the  things  he  needs  but  does  not  himself 
produce;  the  manufacturer  must  dispose  of  his 
products  in  order  to  pay  the  hands  and  keep  the 
machinery  running;  in  a  word,  industry  renders 
the  great  mass  of  the  people  dependent  upon  the 
use  of  money  from  day  to  day,  even  from  hour 
to  hour ;  hence  whatever  money  the  government 
provides  must  be  used  by  all,  whether  they  like  it 
or  not. 

In  a  later  chapter  we  shall  see  that  when  men  do 
not  like  the  money  in  use,  when  they  do  not  trust 
it,  that  very  opinion  inflicts  loss  upon  them  by 
causing  the  money  to  depreciate  on  their  hands. 
Every  effort  that  each  individual  makes  to  avoid 
taking  it,  or  when  that  cannot  be  accomplished  to 
pass  it  off  as  quickly  as  possible  upon  someone 
else,  aggravates  the  depreciation.  It  will  also  ap- 
pear that  individuals,  either  singly  or  when  vol- 
untarily combined  in  numbers  less  than  the  whole 
population,  are  powerless  to  stay  the  tide  of  gen- 
eral distrust ;  it  is  unsafe  for  one  or  many  to  trust 
a  currency  that  is  not  equally  trusted  by  all ;  when 
the  whole  army  is  retreating,  the  single  soldier, 
regiment,  or  brigade  that  tries  to  stand  its  ground 
encounters  certain  destruction,  without  glory  and 
without  benefit  to  the  common  cause. 

Since,   therefore,    the   people    individually,    or 


56  THE  PEOPLE'S  MONEY 

even  by  voluntary  combination  in  large  numbers, 
cannot  sustain  a  currency  not  universally  trusted, 
it  is  evident  that  in  order  to  command  general 
confidence  the  value  of  the  money  in  use  must  be 
vouched  for  by  some  authority  universally  known 
and  respected,  and  in  modern  nations  the  govern- 
ment is  such  an  authority,  and  it  vouches  for  the 
money  by  subjecting  its  coinage  or  manufacture 
to  the  regulation  of  law. 

This  is  the  basis  in  reason  for  the  control  of  law 
over  money,  and  our  laws  on  this  subject  have  a 
historical  basis  and  constitutional  sanction  entire- 
ly consonant  with  this  view.  During  our  colonial 
days,  and  during  the  period  between  the  establish- 
ment of  the  independence  of  the  United  States 
and  the  adoption  of  the  present  Constitution,  the 
people  of  the  country,  as  a  whole,  were  without  any 
constituted  authority  empowered  to  exercise  this 
function,  and  they  suffered  great  and  manifold  evils 
in  consequence.  Under  the  influence  of  this  ex- 
perience the  framers  of  the  Constitution  vested  in 
Congress  "  the  power  to  coin  money,  regulate  the 
value  thereof,  and  of  foreign  coins,  and  fix  the 
standard  of  weights  and  measures." 

Another  clause  provides  that  "  no  State  shall  coin 
money,  emit  bills  of  credit,  or  make  anything  but 
gold  and  silver  coins  a  tender  in  payment  of  debts." 

These  two  clauses  of  the  Constitution  vest  in  the 
United  States  Government  exclusive  control  over 
the  money  of  the  people,  and  since,  as  has  been 
proved,  such  control  should  be  lodged  somewhere, 


LAW  AS  A  BASIS  OF  MONEY  57 

it  is  eminently  proper  that  it  should  be  lodged 
where  the  people  themselves  can  prescribe  how  it 
shall  be  exercised.  The  wise  fathers  of  the  Consti- 
tution were  familiar,  not  only  with  the  experiences 
of  their  own  times,  and  of  the  generations  immedi- 
ately before  them,  but  they  had  looked  into  the 
pages  of  history  and  had  learned  there  how  the 
people  of  all  ages  and  all  parts  of  the  world  had 
suffered  from  the  abuse  of  this  power  by  their  arbi- 
trary rulers.* 

That  the  control  of  the  material,  the  forms,  and 
the  value  of  their  money,  should  be  retained  in  the 
hands  of  the  people  collectively,  who,  as  individ- 
uals, depend  upon  it  so  constantly  and  so  vitally, 
seems  an  ideal  realization  of  the  fundamental  prin- 
ciple of  the  natural  laws  we  have  been  heretofore 
considering,  and  it  is  interesting  to  reflect  that  the 
long  process  of  development,  beginning  in  prehis- 
toric times,  and  passing  through  so  many  ages,  na- 
tions, and  social  phases,  should  have  attained  in  our 
day  and  country  its  natural  culmination  in  placing 
in  the  hands  of  the  people  the  power  to  coin  their 
own  money  and  to  regulate  its  value. 

The  Constitution,  however,  prescribes  that  this 
power  shall  be  exercised  by  the  people  through 
their  representatives  in  Congress,  and  whether  con- 
stitutionally or  otherwise,  Congress  has  placed  a 
very  wide  construction  upon  this  grant  of  power, 
hence  it  behooves  the  people  to  know  what  limita- 

*  See  Adam  Smith,  Wealth  of  Nations,  Book  V.,  chap,  iii.,  p. 
396.  London  :  T.  Nelson  &  Sons,  18C5. 


58  THE  PEOPLE'S  MONEY 

tions  are  imposed  upon  its  exercise  by  the  natural 
laws  on  which  the  constitutional  grant  is  founded, 
and  by  which,  therefore,  it  should  be  interpreted. 

This  inquiry  is  momentous  in  practical  impor- 
tance, because  unless  Congress  exercises  its  powers 
in  conformity  with  natural  laws,  there  will  inevita- 
bly arise  a  state  of  things  contravening  those  laws, 
and  such  a  situation  invariably  leads  to  disaster. 
Nature  never  fails  to  assert  her  supremacy  when  it 
is  disregarded,  and  to  punish  those  who  ignore  her 
institutes  or  transgress  her  laws.  Let  an  architect 
disregard  the  natural  law  of  gravity  or  fail  to  study 
or  to  apply  the  principles  of  molecular  cohesion ; 
let  an  engineer  misinterpret  the  natural  laws  of 
pneumatics;  let  a  farmer  ignore  the  natural  laws 
of  plant-life  or  of  animal  nutrition  ;  let  a  communi- 
ty neglect  the  natural  laws  of  hygiene,  the  conse- 
quences are  certain  and  disastrous ;  but  they  are  no 
more  certain,  and  they  are  far  less  disastrous  be- 
cause less  wide-spread,  than  are  the  consequences 
that  follow  upon  the  ignorant  or  the  wilful  contra- 
vention by  government  of  the  natural  laws  that 
control  the  use  of  money. 

Every  departure  from  true  principles  in  mone- 
tary legislation  is  mischievous  because  it  deranges 
those  delicate  adjustments  between  balanced  values 
that  supply  the  only  stable  foundation  for  commer- 
cial confidence,  whereas  commercial  .confidence  be- 
ing1 essential  to  an  active  trade  and  to  uninter- 
rupted industry  is  therefore  essential  to  general 
prosperity. 


LAW  AS  A  BASIS  OF  MONEY  59 

The  whole  function  of  government,  with  respect 
to  money,  is  limited,  first,  to  establishing  by  law 
what  shall  constitute  the  general  medium  of  ex- 
change, measure  of  value,  and  legal  tender  for  debt 
and  public  dues,  and,  secondly,  to  protecting  this 
money  from  variations  in  value  one  way  or  the 
other.  The  form  and  material  of  the  money,  the 
method  by  which  the  supply  may  be  adjusted  to 
the  needs  of  the  people,  the  establishment  and 
maintenance  of  a  monetary  unit  are  details  requir- 
ing the  application  of  knowledge  drawn  from  ob- 
servation and  experience  both  as  to  the  natural 
laws  which  underlie  all  such  things,  and  as  to  the 
condition,  the  methods,  and  the  necessities  of  in- 
dustry in  the  community  over  which  the  monetary 
system  prevails. 

Sentiment,  prejudices,  ignorance,  vague  and  ill- 
digested  theories,  experiments  and  shifting  expedi- 
ents, are  pernicious  in  their  effects  everywhere  and 
always,  but  when  embodied  in  monetary  laws  they 
work  evils  hard  to  detect  and  harder  still  to  cure  ; 
they  cast  a  blight  upon  industry  and  sow  ruin  and 
demoralization  broadcast  among  the  people. 


CHAPTEK  VII. 

CONFIDENCE  AS  A  BASIS  OF  MONEY 

All  the  teachings  of  history,  all  the  logic  of  po- 
litical economy,  all  the  facts  of  common  experience 
in  respect  to  money,  concur  in  support  of  the  prop- 
osition that  public  confidence  can  make  anything 
pass  as  money,  and,  conversely,  that  nothing  can  so 
pass  unless  there  is  confidence  in  the  future  conti- 
nuity of  its  efficiency  as  a  medium  of  purchase  and 
payment. 

Mistaken  confidence,  as  long  as  it  lasts,  is  quite 
as  effective  for  this  purpose  as  confidence  saga- 
ciously given,  and  a  mistaken  withholding  or  with- 
drawal of  confidence  is  just  as  fatal  as  that  which 
ensues  from  right  reasoning.  Every  transition 
from  the  use  of  one  currency  to  that  of  another  has 
afforded  illustrations  of  the  truth  of  this  proposi- 
tion. We  have  lately  seen  silver  discredited,  and 
no  one  can  doubt  that  gold,  too,  would  have  its 
efficiency  as  money  affected  if  the  universal  con- 
fidence in  its  future  supremacy  as  a  medium  of 
international  settlement  should  be  disturbed. 

In  the  United  States,  as  in  other  countries  simi- 
larly developed,  it  is  the  province  of  the  law  to 
determine  the  material  of  money,  to  prescribe  its 


CONFIDENCE  AS  A  BASIS  OF  MONEY         61 

form  or  forms,  and  to  fix  its  value ;  but  the  law  can- 
not make  it  circulate  unless  the  money  itself  enjoys 
the  confidence  of  the  people. 

Whether  any  particular  form  of  money  is  or  is 
not  entitled  to  command  this  confidence  will  de- 
pend wholly  upon  how  the  government  exercises 
its  prerogative  of  regulating  money,  for  the  condi- 
tions determining  public  confidence  in  respect  to 
money  arise  out  of  natural  laws,  which  are  supe- 
rior in  force  to  statutes.  These  conditions  inevita- 
bly limit  the  free  action  of  every  government,  and 
hence  they  should  be  respected  in  all  monetary 
legislation.  History  establishes  it  as  a  fact,  that 
when  the  material  of  money  is  a  precious  metal, 
possessing  intrinsic  value  equal  to  the  money  force 
conferred  upon  the  coins  by  law,  when  this  value 
is  stable,  when  the  coinage  laws  are  not  subject 
to  capricious  change,  when  the  monetary  unit  or 
standard  of  value  is  fixed  and  steadfastly  adhered 
to,  such  money  will  command  and  retain  public 
confidence  under  all  circumstances  and  in  times  of 
the  greatest  general  confusion.  Its  money  value 
has  a  natural  basis  in  its  intrinsic  value. 

There  is  also  historical  evidence  to  show  that 
when  these  conditions  are  either  not  all  originally 
present,  or  have  become  varied  by  events,  still  pub- 
lic confidence  in  certain  forms  of  money  may  be 
won  and  preserved  by  the  force  of  the  govern- 
ment's credit.  In  such  cases  the  credit  of  the 
government  is  substituted  for  the  whole  or  for  a 
part  of  that  intrinsic  value  which  constitutes  the 


62  THE  PEOPLE'S  MONEY 

natural  basis  of  money,  and  the  degree  of  confi- 
dence thus  imparted  to  any  particular  form  of 
money  depends,  of  course,  upon  the  degree  of  the 
government's  credit. 

The  correlative  of  credit  is  confidence ;  to  obtain 
credit  one  must  enjoy  the  confidence  of  those  from 
whom  it  is  to  be  obtained,  and  hence,  when  a 
government  appeals  to  its  people,  or  to  others,  to 
extend  to  its  money  credit,  as  a  substitute,  wholly 
or  in  part,  for  intrinsic  value  in  the  money  itself, 
that  government  must  be  prepared  to  show  that  it 
is  entitled  to  their  confidence  and  determined  to 
continue  to  merit  it.  Confidence  cannot  be  exact- 
ed ;  like  affection,  respect,  and  gratitude,  it  must 
be  won,  and  to  be  surely  won  it  must  be  deserved. 
Even  after  being  thus  obtained,  confidence  can  be 
perpetuated  only  by  conduct  meriting  its  continu- 
ance. The  fundamental  condition,  therefore,  of 
popular  confidence  in  any  form  of  money,  except 
coins  of  full  and  established  intrinsic  value,  is  the 
credit  of  the  government,  which  is  equivalent  to 
saying  that  the  money  force  of  such  currency  de- 
pends upon  trust  in  the  government. 

Now,  public  trust  in  the  government  includes 
three  distinct  beliefs. 

1st.  Belief  in  the  good  faith  of  the  government ; 
that  is,  in  its  purpose  to  fulfil  all  obligations  ex- 
pressed and  implied  in  its  engagements.  This 
belief  is  fundamental  to  all  credit,  to  that  of  indi- 
viduals as  well  as  to  that  of  governments,  because 
without  such  belief  confidence  could  find  no  solid 


CONFIDENCE  AS  A  BASIS   OF  MONEY         63 

foundation,  and  confidence  is  the  state  of  mind  of 
which  the  objective  manifestation  is  trust. 

2d.  Belief  in  the  stability  of  the  government; 
that  is,  that  it  will  continue  to  have  the  power  to 
apply  the  national  resources  to  the  fulfilment  of  its 
engagements. 

This,  too,  is  obviously  a  necessary  element  in 
confidence.  When  the  form  of  government  is 
monarchical,  stability  means  absence  of  revolu- 
tion, but  when,  as  with  us,  the  government  is  im- 
personal, stability  means  something  different.  A 
representative  and  impersonal  government  is  the 
mere  organ  of  the  community,  and  if  there  is 
danger  that  the  community,  in  changing  its  organ, 
may  at  the  same  time  abrogate  and  repudiate  the 
engagements  then  subsisting,  the  government  will 
not  be  regarded  as  the  organ  of  the  community 
for  making  such  engagements,  and,  therefore, 
such  government  may  not  command  that  degree 
of  confidence  which  the  personal  character  and 
unquestioned  good  faith  of  its  officers  should  in- 
spire and  which  the  national  wealth  justifies.  The 
steward  of  a  wealthy  man  derives  power  to  use 
his  employer's  credit,  not  from  the  latter's  wealth 
alone,  but  from  the  extent  and  permanency  of  his 
control  over  that  wealth.  A  precarious  steward- 
ship will  attract  no  confidence,  and  therefore  can 
acquire  no  credit.  Hence,  stability,  under  our 
form  of  government,  implies  a  settled  purpose 
among  the  people  to  require  all  public  obligations 
to  be  fulfilled,  however  local  politics  may  vary. 


64  THE  PEOPLE'S  MONEY 

3d.  Belief  in  the  sufficiency  of  the  material 
resources  of  the  government  for  fulfilling  its  en- 
gagements. 

It  is  evident  that  an  individual  may  be  honest 
and  earnestly  resolved  to  perform  every  contract 
he  makes,  that  he  may  have  an  assured  position,  a 
stable  business,  and  good  health  [qualities  in  an 
individual  corresponding  as  nearly  as  practicable 
with  stability  in  government],  and  yet,  if  his  un- 
dertakings are  suspected  to  be  beyond  accom- 
plishment by  the  means  within  his  reach ;  if  those 
invited  to  assist  him,  upon  trust  in  his  future 
ability  to  perform,  doubt  that  ability,  he  will  lack 
a  very  material  element  of  credit. 

So  it  is  with  governments;  a  government  that 
asks  to  be  trusted  must  vindicate  its  claim  to  con- 
fidence, first,  by  establishing  a  "  character,"  i.e.,  a 
reputation  for  honesty  of  purpose  and  integrity, 
both  in  legislation  and  administration;  secondly, 
by  satisfying  the  public  as  to  the  permanency  of 
its  hold  upon  the  national  resources  and  upon  the 
official  machinery  for  bringing  those  resources 
under  its  control  in  the  discharge  of  its  obliga- 
tions ;  but,  beyond  both  these  requirements,  there 
is  the  further  indispensable  condition  that  the 
national  resources  at  the  disposal  of  the  govern- 
ment shall  be  sufficient  to  the  discharge  of  such 
obligations,  not  only  ultimately,  but  when  the  ob- 
ligations mature. 

These  three  elements,  therefore,  constitute  the 
substance  of  government  credit,  and  when  they  all 


CONFIDENCE  AS  A  BASIS  OF  MONEY         65 

exist  in  the  highest  degree,  that  credit  is  generally 
sufficient  to  support  a  portion  at  least  of  the  mon- 
etary circulation. 

There  is,  however,  something  else  wanting  to  the 
complete  monetary  efficiency  of  any  form  of  money 
that  depends  wholly  or  partially  upon  government 
credit,  and  that  is,  its  convertibility  into  other 
money  that  derives  its  value  wholly  from  intrinsic 
qualities. 

Since,  at  the  present  time,  greenbacks  and  gold 
certificates  enjoy  equal  confidence,  though  the  coin 
basis  of  the  greenbacks  is  only  about  thirty  per 
cent,  of  their  volume,  it  may  appear  that  the  con- 
vertibility of  credit  money  into  real  money  is  not 
necessarily  an  element  of  public  confidence  in  the 
former,  but  it  must  be  considered  that  potential 
convertibility  suffices  to  support  confidence  until 
the  test  of  actual  conversion  fails ;  what  sustains  a 
convertible  credit-currency  in  circulation  is  the  be- 
lief that  in  any  particular  instance  it  will  stand 
that  test. 

It  may  be  perfectly  well  known,  for  example, 
that  the  government  keeps  only  $100,000,000  in 
gold  with  which  to  redeem  $346,000,000  of  green- 
backs ;  but  as  long  as  the  public  believe  that  this 
sum  is  sufficient  to  maintain  the  convertibility  of 
the  entire  greenback  issue,  few,  if  any,  greenbacks 
will  be  presented  for  redemption;  while,  if  confi- 
dence upon  this  point  should  become  disturbed, 
the  $100,000,000  redemption  fund  would  imme- 
diately have  "a  run"  made  upon  it,  like  the  run 
5 


66  THE  PEOPLE'S  MONEY 

made  by  depositors  upon  a  discredited  bank.  The 
basis  of  this  confidence  is  twofold ;  first,  a  knowl- 
edge that  it  will  take  a  considerable  time  to  ex- 
haust $100,000,000  by  the  ordinary  processes  of 
redemption;  and,  secondly,  that  the  resources  of 
the  government  are  ample  for  repairing  any  prob- 
able drain  upon  this  reserve  of  coin. 

These  being  the  principles  underlying  that  pub- 
lic confidence  which  is  essential  to  money  as  an 
effective  servant  of  society,  let  us  test  them  by  the 
experience  of  our  own  people,  and  apply  them  to 
the  circumstances  of  the  present  time. 

The  money  existing  in  the  United  States  during 
the  last  dozen  years  has  been  of  various  kinds ;  gold 
coins,  silver  coins,  gold  certificates,  silver  certifi- 
cates, currency  certificates,  greenbacks,  and  Na- 
tional Bank  notes,  to  which  are  now  added  "coin 
notes,"  issued  under  the  act  of  July,  1890.  Since 
January  1,  1879,  it  has  all  enjoyed  equal  confidence, 
that  is  to  say,  it  has  all  circulated  indiscriminate- 
ly; has  been  equally  effective  in  purchasing;  has 
been  of  uniform,  and  therefore  of  interchangeable, 
value. 

Before  1879,  however,  this  was  not  the  case ;  gold 
coin  and  gold  certificates  then  were  more  valuable 
than  corresponding  denominations  of  greenbacks 
and  National  Bank  notes.*  The  reason  why  green- 
backs and  National  Bank  notes  were  less  valu- 

*  There  were  no  silver  dollars  at  that  time,  and  the  subsidiary 
coin  being  of  low  intrinsic  value  and  used  only  for  change,  is  not 
taken  note  of  here  or  elsewhere  in  this  treatise. 


CONFIDENCE  AS  A   BASIS  OF  MONEY         67 

able  than  gold,  before  1879,  is  because  the  credit 
currency  did  not  then  stand  as  high  in  popular 
confidence  as  did  gold  coins  and  the  gold  certifi- 
cates. 

When,  however,  the  government  provided  for 
the  convertibility  of  its  paper  into  gold,  first,  by 
the  Resumption  Act,  and  then  by  actually  getting 
the  gold  in  hand  to  effect  resumption,  the  confi- 
dence of  the  people  in  the  greenbacks  and  Na- 
tional Bank  notes  rose  to  the  level  of  their  confi- 
dence in  gold  itself.  The  paper  currency  came  to 
"  par,"  as  the  phrase  goes. 

If  we  analyze  the  grounds  of  this  confidence  we 
shall  find  that  it  rested  on  the  three  distinct  beliefs 
already  enumerated,  viz. : 

1st.  Belief  in  the  good  faith  of  the  government, 
i.e.,  that  having  promised  to  redeem  this  paper  in 
gold  the  government  meant  to  do  so. 

2d.  Belief  in  the  stability  of  the  government. 
Of  course  this  does  not  mean  simply  belief  in  the 
maintenance  of  the  Union  and  of  the  Constitution, 
but  belief  also  in  the  permanent  legislative  and 
administrative  supremacy  of  men  pledged  and  de- 
termined to  fulfil  the  public  obligations.  It  may 
or  may  not  have  been  a  party  question,  but,  in 
either  case,  public  confidence  in  this  respect  neces- 
sarily depends  upon  the  public  belief  that  whoever 
might  be  the  people's  representatives  they  would 
be  required  to  observe  the  plighted  faith  of  the 
government. 

3d.  Belief  in  the  means  of  the  government  for 


68  THE  PEOPLE'S  MONEY 

fulfilling  its  undertaking  to  establish  and  maintain 
the  convertibility  of  greenbacks  into  gold. 

It  will  be  profitable  to  follow  this  instructive 
episode  in  our  recent  monetary  experience  some- 
what in  detail. 

When  the  greenbacks,  which  are  the  govern- 
ment's due  bills,  were  depreciated,  that  deprecia- 
tion was  the  sign  of  the  government's  discredit; 
the  rate  of  depreciation  was  the  measure  of  the  de- 
gree of  such  discredit.  This  discredit  of  the  gov- 
ernment, before  1879,  may  have  been  due  to  the 
absence  of  either  of  the  three  beliefs  enumerated 
above  as  constituting  public  confidence,  or  to  the 
absence  of  any  two  of  them  or  of  all  three.  That 
it  was  not  due  to  the  absence  of  belief  in  the  hon- 
esty or  in  the  stability  of  the  government,  may  be 
inferred  from  the  fact  that  the  gold  certificates  is- 
sued by  the  Treasury  for  gold  deposited  there 
were  freely  accepted  as  equivalent  to  the  gold 
itself.  This  would  not  have  happened  if  the  hon- 
esty or  the  stability  of  the  government  had  been 
doubted.  Indeed,  in  that  case,  there  would  have 
been  no  gold  certificates  at  all,  because  these  are 
issued  only  for  voluntary  deposits  of  gold,  and  no 
one  would  have  deposited  gold  and  taken  a  certifi- 
cate for  it  if  he  had  thought  he  might  not  get  back 
gold  on  demand.  It  follows,  therefore,  that  the  de- 
preciation of  the  greenbacks  before  1875  was  due 
partly  to  the  absence  of  legislative  provision  for 
their  redemption,  and  partly  to  a  doubt  as  to 
whether  the  government  could  command  sufficient 


CONFIDENCE  AS  A  BASIS  OF  MONEY         69 

means  to  redeem  them  in  gold  on  demand,  even  if 
Congress  should  so  resolve ;  while  their  deprecia- 
tion between  January,  1875,  and  January,  1879,  was 
due  wholly  to  this  doubt. 

That  this  was  actually  the  case  is  proved  by  the 
fact  that  the  Resumption  Act,  which  was  passed 
January  14,  1875,*  did  not  raise  the  greenbacks  to 
par,  but  the  accumulation  of  $70,000,000  of  gold 
coin  in  the  Treasury  brought  the  gold  premium 
down,  and  the  negotiation  of  $50,000,000,  of  bonds 
for  $50,000,000  of  gold  coin  finally  extinguished 
it.  The  credit  of  the  government  was  perfected, 
not  by  the  law,  but  by  the  financial  operations 

*  Section  3  of  the  Resumption  Act  provides  :  '  *  .  .  .  it 
shall  be  the  duty  of  the  Secretary  of  the  Treasury  to  redeem  the 
legal  tender  United  States  notes  in  excess  only  of  three  hundred 
million  of  dollars,  to  the  amount  of  eighty  per  centum  of  the  sum 
of  National  Bank  notes  so  issued  to  any  such  banking  association 
as  aforesaid,  and  to  continue  such  redemption  as  such  circulating 
notes  are  issued,  until  there  shall  be  outstanding  the  sum  of  three 
hundred  million  dollars  of  such  legal  tender  United  States  notes, 
and  no  more.  And  on  and  after  the  first  day  of  January,  Anno 
Domini  eighteen  hundred  and  seventy-nine,  the  Secretary  of 
the  Treasury  shall  redeem,  in  coin,  the  United  States  legal  tender 
notes  then  outstanding,  on  their  presentation  for  redemption  at 
the  office  of  the  Assistant  Treasurer  of  the  United  States  in  the 
city  of  New  York,  in  sums  of  not  less  than  fifty  dollars.  And  to 
enable  the  Secretary  of  the  Treasury  to  prepare  and  provide  for 
the  redemption  in  this  act  authorized  or  required,  he  is  author- 
ized to  use  any  surplus  revenues,  from  time  to  time,  in  the 
Treasury,  not  otherwise  appropriated,  and  to  issue,  sell,  and  dis- 
pose of,  at  not  less  than  par,  in  coin,  either  of  the  descriptions  of 
bonds  of  the  United  States  described  in  the  act  of  Congress  ap- 
proved July  fourteenth,  eighteen  hundred  and  seventy,  entitled 
'An  Act  to  authorize  the  refunding  of  the  national  debt.' " 


TO  THE  PEOPLE'S  MONEY 

that  rendered  resumption  practicable.  This  recent 
event  in  our  experience  proves  the  necessity  of 
all  the  three  elements  to  the  perfection  of  credit, 
and  it  also  affords  a  clear  .demonstration  that  the 
preservation  of  the  convertibility  of  the  green- 
backs, and,  therefore,  of  the  credit  of  our  govern- 
ment at  home,  with  its  own  people,  depends  abso- 
lutely upon  its  credit  in  the  money  markets  of  the 
world.  If  that  loan  of  $50,000,000  had  been  im- 
practicable, the  greenbacks  would  not  have  gone 
to  par,  and  the  loan  was  practicable  only  because 
the  bankers  of  this  country  and  of  Europe  be- 
lieved that  the  bonds  were  a  safe  investment.  No 
one  can  deny  these  facts ;  no  one  can  question  this 
deduction  from  them. 

Now,  undoubtedly,  the  confidence  of  the  for- 
eign bankers  who  lent  the  greater  part  of  this 
$50,000,000  rested  upon  their  belief  in  the  honesty 
and  intelligence,  as  well  as  in  the  resources  of  the 
people  of  the  United  States,  and  this  emphasizes 
what  must  always  be  the  prime  consideration  in 
determining  the  degree  of  financial  credit  to  which 
a  government  like  ours  is  entitled,  namely,  the  in- 
telligence, the  knowledge,  the  experience,  and  the 
sense  of  responsibility  attributed  to  those  who  are 
in  a  position  to  control  its  financial  legislation  and 
administration. 

In  private  life  the  credit  enjoyed  by  a  merchant 
depends,  in  a  great  degree,  upon  his  general  busi- 
ness intelligence,  his  knowledge  of  the  article  in 
which  he  deals,  his  experience  in  that  particular 


CONFIDENCE  AS  A  BASIS  OF  MONEY        71 

trade,  the  character  of  his  partners  and  agents,  and 
his  sensitiveness  to  the  demands  of  commercial 
honor,  because  those  are  essential  to  his  success  in 
business,  and  credit  cannot  exist  unless  there  is 
confidence  in  the  debtor's  means  to  command  suc- 
cess in  every  way  and  permanently.  In  like  man- 
ner the  credit  of  a  government  largely  depends 
upon  confidence  in  the  qualifications  of  the  per- 
sons entrusted  with  the  management,  of  its 
finances,  and  in  a  popular  government  like  ours, 
regard  will  also  be  had  to  the  prevalence  among 
the  people  generally  of  sound  monetary  doctrines. 
While  it  is  true  that  of  all  governments  one  di- 
rectly responsible  to  a  people  engrossed  in  indus- 
try is  under  the  highest  obligations  to  cherish 
and  maintain  the  national  credit,  yet  it  is  also  true 
that  these  obligations  are  but  little  understood,  and 
that  the  people  of  the  United  States,  through  their 
representatives,  can  break  all  contracts  and  invali- 
date all  bonds,  while  no  physical  power  on  earth 
could  coerce  the  payment  of  either  the  principal  or 
interest  of  the  national  debt  if  Congress  should 
refuse,  or  even  should  omit  to  provide  for  such  pay- 
ment. 

The  bonds  of  such  a  government  may  seem  but 
slight  security  for  $50,000,000  of  gold  coin ;  but 
the  bankers  who  took  our  bonds  in  1878  knew  that 
the  natural  laws  of  finance  gave  them  a  grip  upon 
the  people  of  the  United  States  more  sure  and 
more  durable  than  could  be  secured  by  the  com- 
bined fleets  and  armies  of  Europe.  These  natural 


72  THE  PEOPLE'S  MONEY 

laws  compel  every  commercial  people  to  sustain 
the  national  credit  at  any  sacrifice,  and  under  all 
circumstances,  on  peril  of  intolerable  loss.  The 
repudiation  of  those  bonds  would  cost  the  people 
of  the  United  States  vastly  more  than  they  would 
gain  by  extinguishing  the  debt  of  $50,000,000  in 
that  way ;  it  would  cost  us  not  less  than  six  times 
as  much,  while  the  mere  attempt  to  repudiate,  even 
if  afterward  abandoned,  would  cost  us  eventually 
more  than  $50,000,000. 

Can  this  be  doubted  ?  Consider  the  effect  of 
discrediting  the  government  of  the  United  States. 
Remember  we  ourselves,  i.e.,  the  masses  of  the  peo- 
ple, did  not  credit  it  for  the  fulh  face  value  of  a 
single  greenback  of  the  $340,000,000  then  outstand- 
ing until  after  the  bankers,  foreign  and  domestic, 
had  agreed  to  lend  it  $50,000,000  of  gold  to  be 
added  to  $70,000,000  already  hoarded  in  the  Treas- 
ury. When  this  immense  sum  of  gold  was  in 
sight,  and  we  had,  moreover,  a  law  authorizing 
and  requiring  the  Secretary  of  the  Treasury  to  sell 
more  bonds  for  the  special  purpose  of  redeeming 
the  greenbacks,  and  when,  moreover,  it  was  obvious 
that  there  was  still  a  market  for  further  issues  of 
bonds,  then,  and  not  until  then,  did  we  venture  fully 
to  trust  our  own  government.  Now  let  the  gov- 
ernment lose  its  credit  with  the  bankers,  can  it  be 
retained  among  the  people?  Surely  not.  The 
$100,000,000  of  gold  now  held  as  a  special  redemp- 
tion fund  will  be  drawn  out  as  fast  as  greenbacks 
can  be  handed  in  through  every  aperture  of  the  re- 


CONFIDENCE  AS  A  BASIS  OF  MONEY         73 

demption  counters  of  the  Treasury,  and  then  there 
will  remain  $246,000,000  of  greenbacks  in  the 
hands  of  the  people,  and  neither  gold  to  redeem 
them  with  nor  credit  with  which  to  get  more  gold. 
These  will,  of  course,  immediately  depreciate,  how 
much  is  immaterial  to  our  immediate  purpose ;  let 
us  say,  only  ten  per  cent.  That  will  take  ten  per 
cent,  off  the  purchasing  power  of  $378,000,000  of 
silver  dollars,  $246,000,000  of  greenbacks,  about 
$172,000,000  of  National  Bank  notes  [because  they 
are  redeemable  in  greenbacks],  making  $796,000,000 
of  currency,  on  which  ten  per  cent,  is  $79,600,000. 

In  the  last  report  of  the  Comptroller  of  the  Cur- 
rency (December,  1892),  deposits  of  all  the  State 
banks  and  trust  companies  are  estimated  at  $1,060,- 
000,000 ;  savings  bank  deposits,  $1,760,000,000 ;  in- 
dividual deposits  in  National  Banks,  $1,780,000,- 
000;  private  bankers  deposits,  $90,000,000.  Total 
debt  of  the  banks,  etc.,  to  the  people,  payable  in 
lawful  money,  $4,690,000,000.  These  deposits  would 
of  course  follow  the  value  of  the  lawful  money  in 
which  they  are  payable.  If  that  should  be  depre- 
ciated ten  per  cent.,  every  depositor  will  lose  ten 
cents  on  the  dollar  in  the  real  value— the  purchas- 
ing power — of  whatever  amount  he  has  on  deposit. 

On  the  $4,690,000,000  of  deposits  above  shown, 
the  loss  would  be  $469,000,000 ;  and  the  loss  on 
currency,  as  above,  would  be  $79,600,000 ;  aggre- 
gate loss  on  above  items  resulting  from  ten  per 
cent,  depreciation  of  greenbacks,  $548,600,000. 
Here,  then,  is  the  sword  held  over  us.  Here  is 


74  THE  PEOPLE'S  MONEY 

the  power  that  compels  us  to  preserve  the  credit  of 
our  government ;  that  is,  not  to  shake  the  con- 
fidence of  capitalists  and  bankers  at  home  or 
abroad  in  the  honesty  of  our  people,  and  the  intel- 
ligence and  the  prudence  of  our  national  legisla- 
tors. But  if  we  find  in  these  considerations  the 
most  insuperable  obstacle  to  countenancing  any 
act  that  may  cause  such  loss  to  our  people  by  its 
mere  recoil,  how  much  more  reason  do  they  afford 
for  not  only  discountenancing  but  denouncing  and 
strenuously  preventing  any  legislation  that,  while 
respecting  our  obligations  to  bankers  and  foreign- 
ers, nevertheless  impairs  the  credit  of  the  govern- 
ment among  its  own  people,  and  through  debasing 
the  standard  by  which  their  money  is  valued  in- 
flicts upon  them  losses  of  stupendous  magnitude. 

Our  circulation  now  includes :  Greenbacks  about 
$346,000,000;  National  Bank  notes,  $172,000,000; 
silver  dollars  and  silver  and  coin  certificates,  say 
$492,000,000 ;  making  the  total  of  paper  and  silver 
held  up  to  a  parity  of  value  with  gold  by  the  credit 
of  the  government,  $1,016,000,000. 

The  entire  value  of  the  greenbacks  and  National 
Bank  notes  depends  upon  credit,  while  the  silver 
dollars  and  silver  certificates  derive  more  than  a 
fourth  of  their  value  from  credit.  Impair  that 
credit,  and  for  every  one  per  cent,  of  currency  de- 
preciation resulting  from  its  impairment,  you  will 
inflict  upon  the  people  who  are  holding  the  cur- 
rency, a  loss  of  $10,760,000  ;  and  upon  depositors 
in  banks,  etc.,  $46,900,000;  here  is  a  loss,  for  every 


CONFIDENCE  AS  A  BASIS  OF  MONEY        75 

one  per  cent,  depreciation  of  $57,660,000.  If  the 
currency  drops  to  the  intrinsic  value  of  412 \  grains 
of  silver  to  the  dollar,  now  65  cents,  that  will  be 
a  loss  of  over  thirty-five  per  cent.,  or  more  than 
$2,000,000,000,  which  is  more  than  three  times  the 
entire  volume  of  the  national  bonded  debt  still 
unpaid. 

Who  can  doubt  that  this  result  will  follow  upon 
any  act  of  our  government  which  lets  go  the  gold 
standard  1  It  cannot  be  denied  that  we  must  have 
a  solid  metallic  basis  of  value  somewhere  for  our 
currency.  When  a  paper  promise  to  pay  ten  dol- 
lars is  presented  to  the  promisor  for  redemption, 
there  must  be  some  real  intrinsic  value  handed 
over  in  fulfilment  of  the  promise.  What  is  it  to 
be  ?  According  to  existing  laws  it  must  be  coins 
containing  either  258  grains  of  gold,  or  else  4.125 
grains  of  silver  900  fine.  There  is  no  standard 
but  these  two  by  which  to  measure  ten  dollars  in 
this  country,  and  as  these  two  standards  differ  in 
real  value,  the  time  will  come  when  we  must 
cleave  to  the  one  and  forsake  the  other. 

Admit,  for  the  sake  of  argument  merely,  that  the 
government  can  elect  to  make  the  silver  dollar  the 
standard  ;  dare  we  encounter  the  consequences  ? 
At  present,  the  standard  is  gold — gold  by  force  of 
the  statute  of  February  12,  1873,  establishing  the 
dollar  of  25.8  grains  of  gold,  nine-tenths  fine,  as 
the  monetary  unit ;  gold  by  contract  under  the 
Eesumption  Act  of  1875 ;  gold  according  to  the 
real  worth  of  the  $4,690,000,000  of  good  money 


76  THE  PEOPLE'S  MONEY 

lent  by  the  people  to  the  banks,  in  the  form  of 
deposits,  and  now  owed  by  the  banks  to  the  peo- 
ple in  gold ;  gold  by  the  common  understanding 
and  business  dealings  of  the  people  during  the 
last  twenty  years.  State,  municipal,  railroad  and 
other  corporation  bonds,  private  bonds,  notes  and 
contracts,  salaries,  wages,  rents  and  taxes,  are  all 
on  a  gold  basis,  placed  there  in  consequence  of 
the  popular  faith  in  these  solemn  enactments  by 
Congress,  sanctioned  by  public  acquiescence. 

Let  Congress  say,  now,  that  the  standard  is  the 
silver  dollar,  and  straightway  a  loss  of  $1,260,000,- 
000  will  fall  upon  those  among  the  people  of  the 
United  States  who  have  no  gold,  no  foreign  ex- 
change, no  government  bonds,  no  bank  stock. 

The  people,  the  masses,  who  have  deposits  in 
the  various  banks,  and  who  hold  the  money  pro- 
vided by  the  government,  will  have  to  bear  the 
entire  loss.  What  boots  it  that  a  large  part  of  this 
fearful  loss  will  be  offset  by  gains  to  those  [banks 
and  bankers]  who  now  owe  this  money,  and  who 
have  been  wise  enough  or  fortunate  enough  to  in- 
vest it  abroad,  or  to  hold  it  here  in  gold,  or  in  se- 
curities convertible  into  gold  ?  No  man  who  is  a 
loser  suffers  less  because  another  man  gains  by 
his  loss.  If  the  many  were  to  be  gainers  and  the 
few  to  be  losers  there  is  a  sort  of  political  con- 
science that  might  be  easy  under  responsibility  for 
legislation  effecting  that  result ;  but  here  the  case 
is  reversed ;  there  will  be  a  hundred  thousand 
losers  for  every  ten  possible  gainers.  Again,  if  the 


CONFIDENCE  AS  A  BASIS  OF  MONEY         77 

poor,  as  a  class,  were  to  be  the  gainers,  and  the 
rich,  as  a  class,  the  losers,  there  is  another  sort  of 
politico-socialistic  conscience  that  might  approve, 
but  in  the  case  supposed  the  reverse  will  take 
place  ;  the  poor  will  all  be  made  poorer,  the  great 
bulk  of  the  people  who  are  in  moderate  circum- 
stances will  bear  the  chief  loss,  while  some  few 
among  the  rich  may  possibly  be  made  richer.  If 
these  things  are  clearly  apprehended,  either  in 
Congress  or  among  the  people,  will  any  voice  be 
raised  to  disturb  the  public  confidence  now  en- 
joyed by  our  money?  No  patriot,  no  statesman 
could  wish  to  disturb  it ;  no  demagogue  or  fanatic 
would  dare  to  do  so. 

Yet  these  things  must  be  true,  because  they  are 
the  result  of  principles  as  fundamental  to  social 
life  and  industry  as  are  the  principles  of  gravity 
and  cohesion  to  physical  existence.  Sooner  or 
later  they  will  be  universally  recognized,  because, 
if  we  do  not  apprehend  them  through  our  intelli- 
gence, they  will  impress  themselves  forcibly  upon 
our  sensation.  The  man  who  ignores  gravity  falls 
and  suffers  pain ;  the  nation  that  ignores  the  nat- 
ural laws  of  finance  invokes  disaster  and  will  in- 
evitably suffer  it. 


CHAPTEK  VIII. 

DEFINITENESS    AND    STABILITY    OF    VALUE    THE    SOLE 
ESSENTIAL  QUALITIES  OF  MONEY 

We  have  seen  that  money  had  its  origin  in  the 
development  of  society  from  primitive  conditions 
into  civilization,  and  that  at  the  present  day  its 
bases  are  to  be  found  in  industry,  in  law,  and  in 
the  confidence  of  the  people.  So  far,  our  investiga- 
tions have  been  confined  to  the  conditions  under 
which  money  is  used ;  we  now  come  to  the  money 
itself.  What  quality  must  money  possess  in  order 
to  conform  to  natural  law,  to  serve  the  needs  of 
industry,  to  command  the  confidence  by  which 
alone  it  can  fulfil  its  functions  as  a  medium  of  ex- 
change and  a  measure  of  value,  and  hence  to  merit 
the  sanction  of  civil  law  ? 

The  answer  is,  the  qualities  essentially  requisite 
for  money  are,  definiteness  and  stability  of  value ; 
that  is,  a  dollar,  a  franc,  or  a  shilling  must  have  a 
settled  definite  value,  and  this  value  should  be 
guarded  against  change.  This  may  be  made  plain 
by  means  of  an  illustration  already  used,  in  which 
money  was  represented  as  an  order  in  favor  of 
its  possessor  for  such  form  of  value  as  he  may  de- 


DEFINITENESS  AND  STABILITY  OF  VALUE     79 

sire.  Manifestly,  the  first  requisite  in  any  order  is 
that  it  should  be  definite  in  its  terms.  If  one 
acquires  for  value  a  delivery  order  for  goods,  he 
requires  it  to  specify  the  quantity  or  the  weight 
which  he  is  to  receive,  and  these  are  expressed  in 
yards  or  pounds  or  perhaps  tons.  This  is  definite 
enough,  provided  there  is  an  accurate  understand- 
ing and  agreement  among  all  parties  concerned 
as  to  the  standard  of  measurement  or  of  weight 
which  is  to  govern  the  transaction. 

This  definiteness  and  this  agreement  is  so  es- 
sential to  all  such  transactions  that  every  civilized 
government  has  established  by  law,  standards  of 
weights  and  measures  which  are  immutable,  while 
the  laws  require  contracts  to  be  settled  by  the 
standards  appropriate  to  the  measurement  of  the 
article  concerned.  Without  such  standards  and 
laws,  orders  and  contracts  for  the  delivery  of  com- 
modities could  not  be  dealt  in  at  all.  Now,  money 
is  an  order  for  value ;  the  material  substance  to 
be  delivered  depends  upon  the  will  of  the  holder 
of  the  order,  who  is  limited  in  his  choice  only  by 
the  supply  of  desired  articles,  but  whatever  ob- 
tainable article  may  be  selected  will  have  its 
value  settled  by  the  amount  of  money  given  for 
it.  A  dollar  is  an  order  for  a  dollar's  worth  of 
labor,  of  cloth,  of  food,  etc. ;  of  course  the  holder 
must  take  it  to  the  proper  dealer,  since  he  cannot 
get  labor  from  his  butcher,  nor  cloth  from  his 
gardener,  but  to  whomsoever  he  takes  it  from 
that  dealer  he  is  entitled  to  full  value— a  dollar's 


80  THE  PEOPLE'S  MONEY 

worth.  Now  it  is  manifest  that  a  standard  of  value, 
fixed  and  immutable,  is  just  as  necessary  to  the 
circulation  of  money  as  is  a  standard  of  weights 
and  measures  to  the  passing  of  orders  for  goods.* 
He  who  gives  labor  for  a  dollar  wants  to  be  abso- 
lutely sure  that  that  dollar  will  have,  in  his,  hands, 
the  power  to  command  as  much  value  as  he  gave 
for  it  in  labor.  It  is  not  really  the  dollar  that  is 
worked  for,  but  it  is  the  dollar's  worth  of  things 
wanted.  Hence  the  degree  of  value  which  is  ex- 
pressed by  the  term  "  dollar  "  should  be  fixed  and 
definite,  for,  without  such  fixed  and  definite  value, 
the  dollar  cannot  be  used  in  comparing  values, 
nor  can  it  be  used  in  exchanging  them  without 
involving  incessant  reappraisements  of  the  dollar 
itself. 

Men  desire  to  exchange  and  to  compare  values 
every  time  a  contract  is  made  for  wages,  services, 
rent,  etc.,  and  every  time  a  commodity  or  any  kind 
of  property  is  being  bargained  for.  In  the  pay- 
ment of  wages,  and  in  all  small  transactions, 
the  current  money  of  the  time  and  place  is  used 
to  measure  values,  just  as  in  the  retail  trade 
the  yard-stick  is  used  to  measure  cloth,  pound 
weights  to  measure  sugar,  or  pint  cups  to  meas- 
ure molasses.  But  beyond  the  retail  trade  goods 
are  passed  from  hand  to  hand  among  whole- 

*  In  the  United  States  Constitution  the  two  stand  in  juxtaposi- 
tion—  coinage  and  the  regulation  of  weights  and  measures 
(Article  I.  Section  VIII.) ;  and  this  close  association  has  been  pre- 
served in  the  designation  of  one  of  the  Standing  Committees  of  the 
House  of  Representatives  "  On  Coinage,  Weights,  and  Measures." 


DEFINITENESS  AND  STABILITY  OF  VALUE     81 

sale  dealers  by  the  package  or  bale,  the  barrel 
or  hogshead,  and  are  paid  for  by  checks  or 
drafts.* 

In  the  export  and  import  trade  the  ownership 
of  cargoes  passes  upon  delivery  of  bills  of  lad- 
ing ;  payment  is  made  for  the  quantities  specified 
in  the  invoices  of  the  seller,  and  such  payment  is 
by  bill  of  exchange.  Now  the  packages,  bales, 
barrels,  hogsheads,  and  cargoes  are  aggregations 
of  quantity  and  weight,  based  upon  primary  and 
fixed  units  of  weight  and  measurement;  in  like 
manner  amounts  of  dollars  or  pounds  sterling, 
specified  in  checks,  drafts,  and  bills  of  exchange, 
are  aggregations  of  money  based  upon  a  primary 
and  fixed  unit  of  value,  designated  by  the  term 
dollar  or  the  term  pound  sterling.  Hence,  as  the 
legal  ounce  is  the  primary  unit  or  standard  of 
weight  for  cargoes  sold  by  the  thousands  of  tons, 
so  the  legal  dollar  or  pound  sterling  is  the  mone- 
tary unit  or  standard  of  value  for  the  check, 
draft,  or  bill  of  exchange  which  pays  for  the 
cargo. 

The  selling  of  goods  in  large  quantities,  by  ag- 
gregated weights  and  measures,  is  an  economy  in 
time,  and  so,  also,  the  payments  of  large  sums,  by 
checks  or  drafts,  is  an  economy  of  time.  If  it 
were  not  for  these  modes  of  aggregating  quan- 
tity on  the  one  hand,  and  aggregating  value  on 
the  other,  much  time  would  necessarily  be  con- 
sumed in  measuring  or  weighing  the  contents  of 

*  Bonds  and  stocks  are  paid  for  in  the  same  way. 
G 


82  THE  PEOPLE'S  MONEY 

cargoes  and  in  counting  out  coins  to  the  amount 
of  the  draft  or  check.* 

Beyond  all  considerations  of  convenience  and 
economy  there  is  underlying  both  the  handling 
of  quantities  of  commodities  in  packages,  cargoes, 
etc.,  and  the  massing  of  value  into  checks  and 
drafts,  a  necessity  that  there  should  be  a  fixed 
unit  of  weight  or  measure  in  the  one  case,  and  a 
fixed  unit  of  value  in  the  other ;  for  without  a  per- 
fect understanding  and  agreement  between  buyer 
and  seller  as  to  the  actual  weight  of  an  ounce,  and 
the  actual  value  of  a  dollar,  these  transactions 
could  never  occur;  merchants  demand  this  cer- 
tainty in  all  their  dealings,  and  they  are  generally 
able  as  well  as  careful  to  secure  it.  If  the  man 
who  is  about  paying  for  a  cargo  by  the  thousand 
tons  has  any  doubt  as  to  what  constitutes  an 
ounce  in  the  estimation  of  the  person  who  has 
weighed  the  cargo  at  the  port  of  shipment,  he  will 
not  make  the  payment  until  he  has  verified  the 
weight  by  his  own  scales  ;  but  if  there  is  no  doubt 
upon  that  point,  he  pays  by  the  weight  specified 
in  the  bills  of  lading. 

So  if  the  man  to  whom  payment  for  this  cargo 
is  being  made  in  the  form  of  check  or  draft,  has 
no  doubt  as  to  the  real  value,  i.e.,  the  kind  of 

*  Drafts,  checks,  etc.,  are  aggregated  values  expressed  in  money 
terms  and  convertible  into  money  upon  certain  conditions,  so  that 
it  has  become  a  habit  to  speak  of  these  aggregations  of  value  as 
money,  whereas  they  are  not  money  any  more  than  a  bill  of 
lading  is  a  cargo  of  cotton,  or  the  elevator  receipt  for  a  thousand 
bushels  of  wheat  is  in  reality  wheat  itself. 


DEFINITENESS  AND  STABILITY  OF  VALUE     83 

dollars,  represented  by  these  paper  orders  for 
money,  he  accepts  them  as  if  they  were  money; 
but  if  he  has  doubts,  he  requires  to  be  assured 
upon  this  point  before  parting1  with  the  bills  of 
lading,  which  are  paper  orders  for  his  property. 
The  quantity  or  weight  specified  in  the  bills  of 
lading  being  fixed,  he  very  reasonably  demands 
equal  certitude  as  to  the  exact  value  he  is  to  get 
in  exchange.  Now,  just  as  the  mint  mark  supplies 
an  assurance  as  to  the  weight  and  fineness  of 
metal  in  coin,  so  does  the  law  establishing  a  mon- 
etary unit  supply  an  assurance  as  to  the  real  value 
recoverable  upon  a  note,  a  draft,  or  a  check,  payable 
in  dollars.  The  monetary  unit  established  by  law 
also  supplies  a  standard  by  which  all  values  may 
be  measured,  and  their  measurement  reduced  to 
money  terms,  just  as  the  unit  of  linear  measure 
established  by  law  supplies  a  standard  by  which 
the  physical  extension  of  all  bodies  may  be  meas- 
ured, and  their  measurements  reduced  to  terms  of 
linear  dimension. 

It  is  absolutely  necessary  to  have  a  unit  of 
value,  not  only  for  measuring  values,  but  for  ex- 
pressing their  measurement  accurately,  because 
unless  the  several  values  of  different  objects  can 
be  thus  ascertained  by  a  common  unit  or  value- 
measure,  and  unless  they  can  be  expressed  in 
terms  common  to  all,  these  values  cannot  be  com- 
pared with  the  requisite  degree  of  exactness  for 
the  purposes  of  trade  and  commerce.  Without 
the  means  for  such  comparison  industry  would  be 


84  THE  PEOPLE'S  MONEY 

paralyzed,  because  modern  industry  depends  for 
its  maintenance  upon  incessant  interchange  of 
products,  and,  as  we  have  seen,  this  interchange 
proceeds  wholly  by  means  of  a  comparison  of  the 
exact  values  of  different  commodities,  or  of  simi- 
lar commodities  at  different  places  and  times. 

The  unit  of  the  English  money  system  was 
formerly  the  shilling,  now  it  is  the  pound  ster- 
ling.* The  unit  of  the  French  system  is  the  franc ; 
the  unit  of  our  system  is  the  dollar.  These,  how- 
ever, are  mere  names  and  may  be  applied  to  any- 
thing ;  they  acquire  definiteness  as  terms  express- 
ing accurate  values  by  force  of  law,  that  law, 
namely,  which  prescribes  what  weight  and  fine- 
ness of  metal  is  really  a  shilling,  a  pound,  a  franc, 
or  a  dollar.  Of  course  the  metal  must  also  be 
specified,  whether  it  be  copper,  silver,  or  gold, 
because  equal  weights  of  these  several  metals, 
though  of  the  same  fineness,  have  different  values. 

Now  it  is  evident  that  since  the  monetary  unit 
serves  as  the  ultimate  standard  by  which  all  values 
are  to  be  measured;  since  it  is  also  the  concrete 
value  which  the  law  assumes  to  be  specified  when- 
ever the  name  affixed  to  it  is  used,  and  since  the 
use  of  that  name  dollar  enters  into  every  tiansac- 
tion,  engagement,  and  contract  relating  to  money, 
this  unit  must  necessarily  be  accurately  defined  as 
to  value,  and  must  be  permanently  established. 

*  The  ideal  shilling,  viz.:  the  one -twentieth  of  a  pound  ster- 
ling, is  really  the  English  unit.  The  shilling  coins  now  in  use 
are  of  silver  and  have  only  a  token  value. 


DEFINITENESS  AND  STABILITY  OF  VALUE     85 

Contracts  to  pay  or  to  receive  money  at  a  future 
time  would  never  be  entered  into  if  the  actual 
value  to  be  paid  or  received  at  that  time  cannot  be 
relied  upon  by  both  parties.  Such  contracts  are 
essential  to  the  free  and  full  play  of  the  forces 
of  industrial  production  and  consumption,  upon 
which  trade  and  commerce  depend,  and  upon 
which,  also,  the  prosperity  of  the  people  depends. 
To  introduce  uncertainty,  therefore,  into  men's 
minds  as  to  the  monetary  unit,  is  to  check  all 
the  springs  of  enterprise,  to  retard  all  the  move- 
ments of  trade,  to  hinder  the  free  interchange  of 
commodities,  and  in  that  way  to  obstruct  and  cur- 
tail both  production  and  consumption,  to  the  dis- 
order of  industry,  and  to  the  damage  of  the  peo- 
ple in  all  ranks  of  life.  The  establishment  of  a 
monetary  unit  or  fixed  standard  of  value  is,  there- 
fore, the  highest  duty  of  governments,  and  the 
more  numerous  and  diverse  the  forms  of  money  in 
use,  the  more  imperative  does  this  duty  become. 
There  is,  however,  another  element  required  to 
make  any  particular  kind  of  money  really  good, 
namely,  invariability  in  its  purchasing  power,  sta- 
bility of  value.  This  quality  of  money  is  not  re- 
cognizable by  a  child,  or  by  an  uneducated  person, 
because  there  is  no  mark,  either  on  coins  or  paper 
money,  by  which  the  presence  or  absence  of  the 
quality  is  indicated.  The  test  as  to  currency,  i.e., 
whether  the  particular  form  of  money  in  question 
passes  current,  does  not  suffice  for  determining  the 
presence  of  the  quality  of  stability  of  value,  since 


86  THE  PEOPLE'S  MONEY 

what  passes  current  to-day  may  not  do  so  to-mor- 
row ;  and  again,  depreciated  money  often  continues 
to  pass  current,  though  its  value,  i.e.,  its  purchas- 
ing power,  is  all  the  time  becoming  less  and  less. 

We  are  so  accustomed  to  measure  values  and  to 
express  all  variations  of  value  by  money,  that  it 
requires  a  little  effort  to  conceive  of  money  itself 
as  varying  in  value,  but  such  a  conception  will  be 
by  no  means  difficult,  if  regard  is  had  to  the  dis- 
tinction between  price  and  value  which  has  been 
already  pointed  out.  Price  is  the  exponent  of  the 
computed  relation  between  value  in  the  commod- 
ity and  value  in  money;  it  is  not  always,  perhaps 
it  is  never,  possible  to  ascertain  absolutely  what 
this  relation  is,  but  price  expresses  the  estimate 
of  it  arrived  at  by  the  conflict  of  opinions  among 
those  who  deal  in  the  commodity,  some  being  in- 
terested to  extol  its  money  value,  and  others 
equally  interested  to  depreciate  it. 

Every  relation  implies  at  least  two  objects  be- 
tween which  the  relation  subsists,  it  also  implies 
something  common  to  them  both,  to  serve  as  a 
medium  of  comparison.  The  two  objects  in  this 
case  are  money  and  some  commodity,  say  a  watch, 
and  what  they  have  in  common  is  value.  When 
we  compare  the  value  of  any  commodity  with  that 
of  money,  we  express  the  result  of  the  comparison 
in  money  value,  that  is,  priee.  So  we  say,  "  This 
watch  is  worth  $100,"  "  The  price  is  $100,"  yet  we 
can  conceive  of  a  man  who  has  $100  saying,  "  The 
price  of  this  $100  is  such  and  such  a  watch." 


DEFINITENESS  AND  STABILITY  OF  VALUE     87 

The  jeweler  buys  $100  with  his  watch  when  the 
customer  buys  the  watch  with  $100. 

Variations  of  the  relation  expressed  by  price 
may,  of  course,  be  caused  by  a  change  in  the 
value  of  the  article,  or  by  a  change  in  the  value 
of  the  money,  or  by  changes  in  both  values.  This 
is  a  matter  of  the  utmost  importance,  to  be  com- 
pletely understood  and  remembered,  because  we 
are  so  accustomed  to  estimate  values  entirely  by 
prices  that  even  well-informed  persons  are  misled 
into  supposing  that  they  are  always  interconvert- 
ible terms.  In  any  event,  price  is  never  more  than 
estimated  value,  and,  too,  value  estimated  by  com- 
parison with  the  value  of  the  money  in  which  the 
price  is  expressed. 

Those  who  are  old  enough  to  remember  the 
prices  prevailing  on  either  side  of  Mason  and 
Dixon's  line  during  the  late  war,  should  have  no 
difficulty  in  discriminating  between  value  and 
price.  The  value  of  a  ten-dollar  gold  piece  never 
varied  between  1860  and  1865,  but  its  price,  whether 
in  greenbacks  or  Confederate  currency,  varied  often 
and  greatly  during  that  time.  Not  only  did  the 
price  vary,  but  it  was  always  varying  and  every- 
where uncertain;  facts  that,  being  truly  inter- 
preted, mean  that  the  two  currencies  in  which 
these  prices  were  expressed  were  themselves  un- 
certain in  value  as  well  as  variable  in  value. 

This  point  being  made  clear,  it  is  evident  that 
good  money  should  not  only  stand  the  test  of 
passing  current,  but  it  should  also  be  definite  in 


88  THE  PEOPLE'S  MONEY 

value  and  possess  the  further  quality  of  stability 
of  value.  The  possession  of  this  latter  quality  is 
essential  to  good  money,  because  we  measure  all 
other  values  by  money,  and  unless  it  is  itself  un- 
changeable in  value,  we  cannot  depend  upon  it 
as  a  measure  of  other  value ;  we  can  never  know 
whether  the  price  asked  for  what  we  have  to  buy 
is  correct  or  not,  nor  how  much  we  ought  to  ask 
for  what  we  have  to  sell  in  order  to  get  full  value. 

Since  stability  of  value  is  an  essential  property 
of  good  money,  the  question  arises,  how  is  this 
obtained?  And  then  there  is  another  question 
behind  this,  namely,  how  are  the  people  to  dis- 
tinguish between  money  that  possesses  this  qual- 
ity and  money  that  lacks  it  ?  Stability  of  value  is 
assured,  when,  as  has  been  the  case  in  England 
for  nearly  half  a  century,  only  one  metal  is  used 
for  money,  or  when,  as  has  been  the  case  in  the 
United  States  since  January,  1879,  all  the  different 
kinds  of  money  in  use  are  maintained  constantly 
at  a  parity  of  value  with  the  monetary  unit. 

The  practical  test  of  stability  in  the  value  of 
the  money  in  use  is  general  stability  in  prices. 
There  is  no  other  test,  nor  can  any  better  be  con- 
ceived. When  prices  of  commodities  generally, 
without  distinction  as  to  relative  supply  and  de- 
mand, advance,  the  money  is  declining  in  value ; 
when  such  prices  decline,  the  money  is  advanc- 
ing in  value ;  when  they  fluctuate  together,  all 
up  and  then  all  down,  the  money  is  fluctuating 
in  value. 


DEFINITENESS  AND  STABILITY  OF  VALUE     89 

When  the  Confederate  currency  was  constant- 
ly declining  in  value,  all  prices  advanced,  pari 
passu,  until  there  was  nothing  cheap  enough  to 
be  bought  with  the  entire  issue.  Before  this  final 
evaporation  of  all  value,  it  had  been  said  in  Rich- 
mond that  a  man  going  to  market  needed  a  basket 
for  his  money,  but  might  bring  home  dinner  for 
the  family  in  his  purse.  Many  a  family  realized 
the  truth  underlying  this  too  keenly  to  appreciate 
the  humor  of  the  illustration.  Between  1862  and 
1864  greenbacks  also  steadily  declined  in  purchas- 
ing power,  and  after  the  latter  date  they  were  con- 
stantly variable  in  this  respect,  wherefore  prices 
throughout  the  United  States  rose  from  1862  to 
1864,  and  afterward  fluctuated  with  the  gold  pre- 
mium. 


CHAPTEE  IX. 

THE    MONETAKY    UNIT 

Whenever  the  money  of  any  community  con- 
sists, as  ours  does,  of  elements  diverse  in  material, 
form,  and  intrinsic  value,  such  as  coins  of  differ- 
ent metal  and  paper  notes,  these  elements  must 
be  maintained  in  harmony  among  themselves,  as 
respects  their  purchasing  power  or  money  force, 
in  order  that  the  people's  money,  as  a  whole, 
may  possess  and  retain  the  essential  qualities  of 
definiteness  and  stability  of  value.  It  is  manifest 
that  if  any  two  kinds  of  dollars,  while  continu- 
ing to  circulate  side  by  side,  should  come  to  dif- 
fer in  purchasing  power,  then  the  term  dollar 
would  lose  its  definiteness  as  an  expression  of 
value,  and  there  would  ensue  throughout  the 
community  indescribable  confusion  and  conten- 
tion as  to  which  of  the  two  should  be  paid  and 
received  as  the  true  dollar.  There  would  be  two 
measures  for  determining  a  dollar's  worth  of 
everything,  whether  it  be  of  labor  or  of  the  ten 
thousand  objects  daily,  and  almost  hourly,  bought 
and  sold  in  all  parts  of  the  land;  and  no  one 
would  be  competent  to  decide  between  the  two. 
It  would  be  still  worse  if  there  were  in  circulation 


THE  MONETAKY  UNIT  91 

several  kinds  of  dollars  each  having  a  different 
value. 

It  has,  however,  been  ascertained,  by  the  expe- 
rience of  past  generations,  that  even  two  kinds  of 
money  cannot  possibly  continue  circulating  side 
by  side  when  once  they  are  recognized  as  differ- 
ing in  purchasing  power,  i.e.,  in  money  force,  be- 
cause the  moment  any  inequality  of  value  among 
the  ingredients  of  a  mixed  currency  is  discovered 
or  even  suspected  to  exist,  that  moment  everybody 
hoards  the  more  valuable  and  hurries  to  pass  off 
the  less  valuable  of  those  ingredients,  so  that  in 
a  short  time  the  former  are  sifted  out  from  the 
circulation  and  disappear,  while  only  the  least 
valuable  ingredient  of  all  remains  accessible  to 
the  people,  thus  debasing  the  money  of  the  com- 
munity and  correspondingly  affecting  all  meas- 
urements of  values,  i.e.,  raising  the  prices  of  ev- 
erything. 

This  natural  law  was  first  pointed  out  by  Sir 
Thomas  Gresham,  three  hundred  years  ago,  and 
by  reference  to  history  it  is  found  to  have  as- 
serted itself,  both  before  his  time  and  since, 
whenever  and  wherever  two  or  more  kinds  of 
money,  circulating  together,  have  been  perceived, 
or  even  suspected,  to  have  lost,  or  to  be  likely  to 
lose,  their  equipoise  in  value.  So  universal  and 
inevitable  is  the  operation  of  this  law  that  people 
of  all  lands  and  all  tongues  have  defied  edicts, 
statutes,  and  even  military  force;  they  have  put 
aside  old  prejudices  and  disregarded  usage,  tra- 


92  THE  PEOPLE'S  MONEY 

dition,  patriotism,  public  spirit,  even  what  appears 
to  be  their  own  immediate  welfare  and  prosper- 
ity, in  the  irresistible  impulse  to  pursue  a  course 
of  individual  conduct  which,  when  practised  by 
all,  inevitably  results  in  restricting  the  money  cir- 
culating in  the  community  to  the  least  valuable 
and  least  desirable  of  its  elements.* 

*  "  The  silver  coin,  which  was  then  the  standard  coin  of  the 
realm,  was  in  a  state  at  which  the  boldest  and  most  enlightened 
statesmen  stood  aghast. 

"  Till  the  reign  of  Charles  the  Second  our  coin  had  been 
struck  by  a  process  as  old  as  the  thirteenth  century.  The  metal 
was  divided  with  shears  and  afterward  shaped  and  stamped  by 
the  hammer.  In  these  operations  much  was  left  to  the  eye  and 
hand  of  the  workman.  It  necessarily  happened  that  some  pieces 
contained  a  little  more  and  some  a  little  less  than  the  just  quan- 
tity of  silver  :  few  pieces  were  exactly  round  ;  and  the  rims  were 
not  marked.  It  was  therefore  in  the  course  of  years  discovered 
that  to  clip  the  coin  was  one  of  the  easiest  and  most  profitable 
kinds  of  fraud;  and,  about  the  time  of  the  Restoration,  people 
began  to  observe  that  a  large  proportion  of  the  crowns,  half- 
crowns  and  shillings  which  were  passing  from  hand  to  hand  had 
undergone  some  slight  mutilation. 

"That  was  a  time  fruitful  of  experiments  and  inventions  in 
all  the  departments  of  science.  A  great  improvement  in  the 
mode  of  shaping  and  striking  the  coin  was  suggested.  A  mill, 
which  to  a  great  extent  superseded  the  human  hand,  was  set  up 
in  the  Tower  of  London.  This  mill  was  worked  by  horses, 
and  would  doubtless  be  considered  by  modern  engineers  as  a 
rude  and  feeble  machine.  The  pieces  which  it  produced,  how- 
ever, were  among  the  best  in  Europe.  It  was  not  easy  to  coun- 
terfeit them;  and,  as  their  shape  was  exactly  circular,  and  their 
edges  were  inscribed  with  a  legend,  clipping  was  not  to  be  appre- 
hended. The  hammered  coins  and  the  milled  coins  were  cur- 
rent together.  They  were  received  without  distinction  in  public, 
and  consequently  in  private,  payments.  The  financiers  of  that  age 
seem  to  have  expected  that  the  new  money,  which  was  excellent, 


THE  MONETAKY  UNIT  93 

In  such  cases,  of  course,  the  sifting  and  hoard- 
ing is  clone  chiefly  by  those  who  are  the  first 
to  perceive  the  tendency  toward  divergence  in 
value,  and  as  these  are  generally  bankers  and 
other  dealers  in  money,  they  reap  whatever  bene- 
fit can  possibly  be  got  out  of  the  sifting  and  the 
hoarding,  while  the  refuse  of  the  circulation  is 

would  soon  displace  the  old  money,  which  was  much  impaired. 
Yet  any  man  of  plain  understanding  might  have  known  that, 
where  the  State  treats  perfect  coin  and  light  coin  as  of  equal 
value,  the  perfect  coin  will  not  drive  the  light  coin  out  of  circu- 
lation, but  will  itself  be  driven  out.  .  .-  . 

"  The  politicians  of  that  age,  however,  generally  overlooked 
these  very  obvious  considerations.  They  marvelled  exceedingly 
that  everybody  should  be  so  perverse  as  to  use  light  money  in 
preference  to  good  money.  In  other  words,  they  marvelled  that 
nobody  chose  to  pay  twelve  ounces  of  silver  when  ten  would 
serve  the  turn.  The  horse  in  the  Tower  still  paced  his  rounds. 
Fresh  wagon -loads  of  choice  money  still  came  forth  from  the 
mill  ;  and  still  they  vanished  as  fast  as  they  appeared.  Great 
masses  were  melted  down  ;  great  masses  exported ;  great  masses 
hoarded  :  but  scarcely  one  new  piece  was  to  be  found  in  the  till 
of  a  shop,  or  in  the  leathern  bag  which  the  farmer  carried  home 
after  the  cattle  fair.  .  .  .  During  many  years  this  evil  went 
on  increasing.  At  first  it  was  disregarded  :  but  it  at  length  be- 
came an  insupportable  curse  to  the  country.  It  was  to  no  pur- 
pose that  the  rigorous  laws  against  coining  and  clipping  were  rig- 
orously executed.  At  every  session  that  was  held  at  the  Old 
Bailey  terrible  examples  were  made.  .  .  .  One  morning 
seven  men  were  hanged  and  one  woman  burned  for  clipping. 
But  all  was  vain.  .  .  . 

"  The  evil  proceeded  with  constantly  accelerating  velocity.  At 
length  in  the  autumn  of  1695  it  could  hardly  be  said  that  the 
country  possessed,  for  practical  purposes,  any  measure  of  the 
value  of  commodities.  It  was  a  mere  chance  whether  what 
was  called  a  shilling  was  really  tenpence,  sixpence,  or  a  groat." — 
Macaulay's  History  of  England,  chap.  xxi. 


94  THE  PEOPLE'S  MONEY 

put  off  upon  laborers,  artisans,  farmers,  and  other 
plain  folk.  These  classes,  constituting  the  bulk 
of  the  population,  must  either  make  out  with  the 
refuse  or  go  without  money  altogether,  and  they 
thus  become  forced  to  suffer  inconvenience  and 
loss  by  reason  of  that  uncertainty  and  confusion 
as  to  all  values  which  invariably  attends  the  dis- 
solution of  a  mixed  currency.  As  every  mixed 
currency  is  in  danger,  more  or  less,  of  having 
the  equilibrium  of  value  among  its  ingredients 
disturbed,  at  some  time  or  other,  by  causes  be- 
yond the  control  of  the  government  and  people, 
and  of  thus  suffering  dissolution,  such  curren- 
cies have  been,  by  many  writers  and  statesmen, 
altogether  condemned  as  mischievous  to  the  peo- 
ple, and  the  only  grounds  upon  which  they  have 
been  justified  are  these  four  :  First,  the  conven- 
ience to  the  people  of  having  several  kinds  of 
money  from  which  to  select  whichever  best  suits 
each  occasion;  secondly,  economy  in  the  use  of 
one  or  both  of  the  precious  metals ;  thirdly,  rais- 
ing the  volume  of  the  circulation  above  what 
could  be  maintained  by  using  only  one  of  these 
metals ;  fourthly,  the  various  considerations,  what- 
ever they  may  be,  that  support  the  doctrines  of 
the  bimetallists. 

"Without  discussing  here  the  positive  or  relative 
force  properly  due  to  either  of  these  four  postu- 
lates, it  is  evident  that  they  all  rest  upon  the 
assumption  that  such  a  mixed  currency  as  they 
severally  uphold  is  advantageous  to  the  people 


THE  MONETARY  UNIT  95 

If  this  is  true,  then  the  good  of  the  people  re- 
quires that  whatever  may  be  the  ingredients  of 
the  currency  their  coequal  value  should  be  pre- 
served, because,  if  this  is  disturbed,  one  or  more 
of  these  ingredients  will  be  eliminated,  and  this 
will  defeat  every  object  of  a  mixed  currency. 
It  follows,  therefore,  that  all  who  for  any  reason 
favor  our  present  mixed  currency,  must,  by  logical 
necessity,  assent  to  the  proposition  that  the  good 
of  the  people  requires  that  the  elements  compos- 
ing it  be  preserved  in  harmony  of  value,  since, 
because  of  Gresham's  law,  that  is  the  sole  condi- 
tion upon  which  the  integrity  of  the  currency  can 
be  secured  and  the  volume  of  the  circulation 
maintained. 

This  point  being  established,  it  remains  next  to 
inquire  how  this  desired  object  can  be  practically 
accomplished,  and  the  answer  is,  only  by  the  es- 
tablishment and  maintenance  of  a  monetary  unit, 
or  a  unit  of  value,  corresponding  with  the  denom- 
inational unit  of  the  money  system  of  the  commu- 
nity. 

A  monetary  unit  is  a  definite  weight  of  a  par- 
ticular metal  of  a  certain  fineness,  established  by 
law,  to  be  the  actual  substantive  value  desig- 
nated by  the  term  which  is  the  denominational 
unit  of  the  money  system  of  the  country.  The  de- 
nominational unit  of  our  money  system  is  the  term 
dollar  ;  the  monetary  unit,  or  unit  of  value,  is  25.8 
grains  of  gold,  nine-tenths  fine.  It  may  be  inter- 
esting to  trace  the  history  of  this  matter  in  the 


96  THE  PEOPLE'S  MONEY 

laws  of  the  United  States.  About  the  time  the 
Revolutionary  war  broke  out  the  public  men  and 
journalists  of  the  different  colonies  had  begun  to 
call  the  inhabitants  of  these  colonies  distinctively 
Americans,  and  to  speak  of  their  common  country 
as  America,  but  these  terms  reflected  no  actual 
unity  of  origin,  sentiment,  or  society  among  the 
people.  They  arose  merely  from  an  aspiration 
toward  nationality  that  appears  pathetic  when 
contrasted  with  the  actual  condition  of  the  com- 
munities which  cherished  it. 

The  thirteen  colonies  were  not  only  under  dis- 
tinct governments,  but  they  were  isolated  commu- 
nities, each  having  a  history  and  traditions  of  its 
own,  some  peculiarity  of  population,  industry,  and 
religion  :  its  own  centre  of  influence,  and  its  own 
group  of  public  men,  intent  chiefly  upon  local  use- 
fulness and  celebrity.  Under  these  conditions  the 
people  of  the  colonies,  until  their  quarrel  with 
Great  Britain,  had  little  in  common,  save  their 
experience  with  respect  to  money,  and  it  is  useful 
to  recall  this  experience  now,  because  it  is  the 
foundation  of  our  monetary  legislation,  and  also 
because  it  illustrates  most  vividly  the  cardinal 
principles  which  underlie  this  whole  subject. 

The  money  circulating  in  the  colonies  consist- 
ed of  British,  French,  and  Spanish  coins,  chiefly 
the  latter,  and  also  of  paper  bills  of  credit  emitted 
by  the  different  colonial  governments.  In  all  his- 
tory there  is  nothing  so  instructive,  in  respect  to 
money,  as  the  account  of  the  various  currencies 


THE  MONETARY  UNIT  97 

that  from  time  to  time  vexed  the  souls  of  the  peo- 
ple and  thwarted  all  industrial  efforts  in  these  en- 
terprising and  resolute  communities.*  Experience, 
therefore,  impressed  the  Fathers  of  the  American 
Union  with  the  importance  of  a  new  departure 
in  financial  management,  and  hence  we  find  that 
the  Articles  of  Confederation,  which  stand  at  the 
threshold  of  our  national  existence,  vested  in  Con- 
gress "  the  sole  and  exclusive  right  and  power  of 
regulating  the  alloy  and  value  of  coin  struck  by 
their  own  authority  or  by  that  of  the  respective 
States."  The  States  not  being  yet  ready  to  sur- 
render the  prerogative  of  coinage  (although  un- 
able to  avail  themselves  of  it)  nevertheless  recog- 
nized the  necessity  of  co-ordinating  their  several 
coinages  with  each  other,  and  with  that  of  the 
Congress,  and,  as  it  were,  fusing  into  one  mon- 
etary whole  the  diverse  elements  composing  what 
was  then  the  only  money  of  the  people,  f 

A  further  and  more  effective  step  in  the  same 
direction  was  afterward  made  by  providing  in  the 
Constitution  that  "  the  Congress  shall  have  power 
to  coin  money,  regulate  the  value  thereof,  and  of 
foreign  coins,"  and  that  "no  State  shall  coin 
money,  emit  bills  of  credit,  or  make  anything  but 

*  See  Money,  p.  304  et  seq.  F.  A.  Walker,  New  York,  1878. 
Money  :"  Its  Laws  and  History,  p.  429  et  seq.  H.  V.  Poore,  New 
York,  1877.  Simmer's  American  Currency. 

f  The  Congress  of  the  Confederation  had,  on  July  6,  1785,  es- 
tablished the  dollar  as  the  ideal  money  unit,  and  on  August  8, 
1786,  an  act  was  passed  to  create  a  coinage,  but  nothing  practical 
was  done  under  it. 
7 


98  THE  PEOPLE'S  MONEY 

gold  and  silver  coin  a  tender  in  payment  of  debts." 
Even  up  to  1789  no  gold  and  silver  had  been 
mined  in  the  United  States,  and  the  metallic 
money  in  circulation  consisted  almost  wholly  of 
foreign  coins,  chiefly  Spanish  dollars,  which  passed 
at  slightly  different  rates  in  different  parts  of  the 
country  under  various  Colonial  and  State  laws,  so 
that  the  first  of  the  above-quoted  clauses  of  the 
Constitution  is  a  distinct  recognition  of  the  obli- 
gation naturally  resting  upon  the  government,  to 
unify  and  consolidate  the  currency,  which  was 
even  more  diverse  in  form,  though  less  so  in  the 
intrinsic  value  of  its  several  ingredients,  than  that 
with  which  we  have  to  deal  in  1893 ;  while  the 
second  was  evidently  intended  to  erect  a  barrier 
against  the  introduction  into  the  general  mass 
of  the  people's  money  of  any  element  which 
could  not  be  always  so  regulated  in  value  as  to 
be  maintained  at  a  level  with  all  the  other  ele- 
ments. 

In  pursuance  of  these  wise  provisions  of  the 
Constitution,  Congress,  by  the  Act  of  April  2d, 
1792,  established  the  dollar  as  the  "  unit  of  the 
money  of  account"  for  the  whole  United  States, 
and  from  that  day  to  this  all  our  conceptions  of 
the  value  of  things,  all  our  computations  and 
contracts,  have  been  expressed  in  dollars.  •  From 
1792  to  1862  legal  provision  was  made  from  time 
to  time  for  preserving  uniformity  in  the  conven- 
tional value  of  whatever  different  kinds  of  money 
enjoyed  the  recognition  of  the  Federal  govern- 


THE  MONETARY  UNIT  99 

merit ;  but  during1  that  interval  there  arose  many 
banks  chartered  by  the  separate  States,  and  the 
notes  issued  by  these  banks,  though  not  sanctioned 
by  any  Federal  law,  constituted  a  very  large  part 
of  the  currency  circulating  among  the  people. 
Though  expressed  in  dollars  and  redeemable  in 
United  States  coin,  those  bank-notes  were  by  no 
means  of  uniform  money  force  everywhere,  nor  were 
they  always  constant  in  such  force  at  the  same 
place,  which  caused  great  inconvenience  and  loss  to 
the  people,  especially  to  farmers,  laborers,  trades- 
men, and  artisans,  who  were  constrained  by  force 
of  circumstances  to  accept  this  sort  of  money  in 
payment  for  their  products,  their  services,  and  their 
wares.* 

After  1862  monetary  affairs  became  greatly  dis- 
ordered by  the  war,  coin  disappeared  from  general 
circulation,  while  United  States  Treasury  notes  on 
one  side,  and  Confederate  States  Treasury  notes 
on  the  other,  became,  under  the  operation  of  Gresh- 
am's  law,  the  only  kind  of  money  available  to  the 
people  at  large,  notwithstanding  that,  according  to 
the  best  estimate,  the  gold  coin  in  the  country 
was  never  less  than  $200,000,000.1  When  the  war 
ended,  in  1865,  the  Confederate  currency  was  worth 
less,  and  the  greenbacks  were  so  depreciated  that 
$100  in  that  currency  would  buy  only  about  $70  in 

*  See  Report  Ways  and  Means  Committee,  H.  R.,  1831,  on 
President's  Message  relating  to  rechartering  of  the  Bank  of  the 
United  States.  Also,  Money :  Its  Laws  and  History,  p.  527  et 
seq.,  and  p.  544  et  seq.  H.  V.  Poore,  New  York,  1877. 

f  See  Report  of  the  Secretary  of  the  Treasury,  1886,  p.  79. 


100  THE  PEOPLE'S  MONEY 

gold  coin  of  the  United  States.  The  National  Bank 
notes,  being  redeemable  in  greenbacks,  conformed 
in  conventional  value  to  that  depreciated  cur- 
rency.* 

The  people  of  the  re-United  States  consequently 
found  themselves  compelled  to  buy  at  a  premium 
of  about  forty  per  cent,  whatever  amount  they 
needed  of  money  conformed  in  value  to  the  dol- 
lar which  the  Act  of  1792  had  established  as  the 
unit  of  account,  and  a  great  many  of  them  needed 
such  money,  either  to  carry  on  foreign  trade,  to 
pay  the  duty  on  imports,  which  the  government 
exacted  in  gold,  or  to  travel  beyond  the  limits  of 
the  United  States.  The  depreciation  of  the  only 
currency  obtainable  by  the  people  at  large  in  pay- 
ment for  their  products  and  services  lifted  up  all 
prices  above  the  plane  of  real  commercial  value 
in  such  a  way  as  to  place  industrial  producers  in 
this  country  at  a  great  disadvantage  with  those 
abroad.  It  also  placed  all  the  people,  in  their 
capacity  of  buyers  of  what  they  consumed,  at  sim- 
ilar but  still  greater  disadvantage,  in  comparison 
with  their  condition  before  1861  and  since  1879. 
The  chief  weight  of  this  disadvantage  rested  upon 
the  poorer  classes  in  the  towns,  and  upon  farm- 
ers, artisans,  and  the  like. 

It  was  because  of  the  losses  and  inconveniences 
resulting  from  this  condition  of  things  that  the 
people,  with  cheerful  unanimity,  undertook,  and 

*  Every  redeemable  currency  conforms  in  value  to  the  value  of 
the  medium  of  its  redemption. 


THE  MONETARY  UNIT  101 

carried  through,  the  painful  process  of  specie  re- 
sumption, which  is  only  another  name  for  the  res- 
toration of  the  dollar  as  "  the  unit  of  the  money 
of  account "  to  the  value  it  had  in  1792,  as  pre- 
served by  the  successive  changes  made  by  the  Acts 
of  June  28,  1834,  January  18,  1837,  February  21, 
1853,  and  February  12,  1873,  in  the  weight  and 
fineness  of  the  metals  selected  for  expressing  this 
value.  Whoever  supposes  that  the  people  of  this 
country  are  unable  to  see  and  to  appreciate  the 
consequences  of  monetary  legislation  may  well 
ponder  this  recent  episode  in  our  history  and  take 
note  that  the  permanent  respect  and  confidence  of 
the  American  masses  is  obtained  only  by  states- 
men who  counsel  wisely  in  matters  affecting  our 
general  industrial  and  financial  interests,  and  that 
politicians  who  pander  to  such  local  and  ephem- 
eral aberrations  as  the  greenback  fanaticism  and 
the  silver  craze  surely  sink  into  disrepute  and  ob- 
scurity. 

The  Kesumption  Act,  and  the  measures  taken  in 
pursuance  of  it,  restored  to  the  people  substan- 
tially the  money  intended  to  be  guaranteed  to 
them  by  the  Constitution,  and  the  last  of  the  series 
of  acts  fixing  the  value  of  this  money,  based  it  on 
a  monetary  unit,  viz.,  25.8  grains  of  gold,  nine- 
tenths  fine.  This  has  remained  until  to-day  the 
monetary  unit  of  the  United  States,  and  by  this  all 
values  have  been  measured  and  computed  since 
January  1,  1879. 

The  importance  to  the  people  of  selecting  and 


102  THE  PEOPLE'S  MONEY 

adhering  to  a  certain  weight  and  fineness  of  one 
metal  as  the  monetary  unit,  arises  wholly  out  of 
the  fact  that  their  money  is  manifold  in  form,  sub- 
stance, and  intrinsic  value.  If  we  had  only  gold 
coins,  or  only  silver  coins ;  if  these  were  of  uni- 
form fineness,  and  proportioned  to  each  other  in 
weight,  according  to  the  denominations  of  the 
monetary  scale  or  system,  and  if  all  the  paper 
money  was  securely  redeemable  in  whichever  of 
these  two  coinages  constituted  the  sole  legal  ten- 
der, the  unit  of  that  coinage  would  be  the  mone- 
tary unit  of  the  country.  Our  four  kinds  of  money, 
however,  differ  in  intrinsic  value,  and  therefore 
they  can  be  maintained  at  uniform  conventional 
and  legal  value  only  by  investing  one  of  the  two 
metallic  coinages  (gold  and  silver)  with  the  char- 
acter of  a  basis  or  standard  of  value,  and  by  force 
of  law  conferring  upon  the  other  elements  of  the 
currency  values  representative  of  the  actual  value 
intrinsically  present  in  that  selected  to  be  the 
standard. 

The  government  is  by  no  means  free  to  select 
either  of  the  two  coinages  as  the  standard,  but 
must  select  that  of  greater  intrinsic  value,  or  else, 
under  Gresham's  law,  those  coins  will  disappear 
from  circulation.  If  instead  of  25.8  grains  of  gold 
412|  grains  of  silver  had  been  made  the  monetary 
unit  in  1873,  we  should  now  have  no  gold  coin  at 
all  in  circulation,*  because,  while  legislative  force 
and  the  credit  of  the  government  may  supplement 

*  There  are  no  gold  coins  circulating  in  Mexico  or  India. 


THE  MONETARY  UNIT  103 

intrinsic  value  they  cannot  be  applied  in  abate- 
ment of  it ;  hence  by  operation  of  natural  law, 
overriding  all  political  and  other  considerations, 
every  community  must  take  its  monetary  unit 
from  that  element  in  the  currency  which  is  intrin- 
sically the  most  valuable.  The  monetary  unit 
once  established  becomes  the  standard  for  meas- 
uring all  values  expressed  in  money,  and  thus  it 
enters  into  all  business  and  financial  transactions, 
arrangements,  and  contracts;  hence  it  should  be 
always  preserved  at  substantially  the  same  level 
of  value. 

We  have  seen  that  definiteness  and  stability  of 
value  are  essential  qualities  of  money,  and  since 
all  money  existing  in  the  form  of  a  mixed  cur- 
rency conforms  in  value  to  the  monetary  unit, 
this  unit  must  of  course  possess  these  qualities  in 
the  highest  degree.  The  haste  of  modern  life,  the 
velocity  attained  by  the  currents  of  business,  pro- 
duce a  tendency  to  definiteness  in  quantities,  in 
values,  and  even  in  terms,  which  is  as  character- 
istic of  the  age  as  it  is  a  necessary  condition  of 
order  and  confidence  amidst  the  throng  of  trans- 
actions that  must  be  rushed  through  the  strait- 
ened hours  of  every  day. 

The  progress  toward  simplification  and  method, 
which  begun  when  coins  were  substituted  for 
scales  and  weights  in  the  measurement  of  copper, 
silver,  and  gold,  has  been  continued  constantly  in 
the  direction  of  improving  the  coins,  perfecting 
their  accuracy,  and  fortifying  their  permanency  in 


104  THE  PEOPLE'S  MONEY 

respect  to  value,  and  its  logical  conclusion  is  now 
reached  in  the  adoption  of  a  monetary  unit,  by 
means  of  which  several  kinds  of  money,  varying 
in  intrinsic  value,  are  co-ordinated  as  to  legal 
value,  and  their  solidarity  in  the  currency  is  estab- 
lished and  preserved. 

It  may  be  well,  just  here,  to  point  out  that  as 
there  can  be  but  one  unit  in  each  monetary  sys- 
tem, there  should  be  but  one  monetary  unit  in 
each  country.  If  any  doubt  this,  let  them  imagine 
two  such  units ;  then  either  these  must  be  of  iden- 
tical value,  or  of  different  values;  if  they  are  of 
identical  value,  they  are  mere  duplicates,  equiva- 
lent to,  and  reducible  to  a  single  unit ;  hence  one 
or  the  other  of  the  two  is  superfluous.  But  if  the 
two  monetary  units  differ  in  value,  then  we  have 
two  meanings  to  one  word,  and  to  that  word, 
which  of  all  words  of  similar  import,  has  been 
presumably  selected  by  the  law  to  be  confined  to 
one  definite  and  invariable  meaning.  Beyond 
this;  if  you  have  two  monetary  units  of  differ- 
ent values,  then  you  have  two  monetary  systems, 
each  with  a  unit  of  its  own,  and  the  people  who 
have  to  use  these  two  systems  will  be  subjected 
to  the  inconvenience  of  having  to  translate  values 
expressed  according  to  one  system  into  the  equiv- 
alent expressions  of  the  other  system. 

It  would  be  like  the  pleadings  in  the  old  courts 
at  New  Orleans,  when  half  the  jury  understood 
only  English,  and  the  other  half  understood  only 
French,  so  that  evidence  and  argument  had  to  be 


THE  MONETAEY  UNIT  105 

addressed  to  one  half,  and  translated  for  the  ben- 
efit of  the  other  half ;  a  system  which  maintained 
a  large  body  of  professional  interpreters,  but  was 
very  costly  to  litigants.  In  the  same  way,  a  peo- 
ple subjected  to  a  dual  monetary  unit  would  have 
to  maintain  an  army  of  money-changers  out  of  the 
earnings  of  legitimate  industry.  We  had  an  exam- 
ple of  this  between  1862  and  1879,  when  we  had 
in  this  country  a  dual  monetary  unit,  one  for  the 
people  generally,  and  another  for  the  transactions 
connected  with  foreign  commerce,  including  the 
payment  of  duties  on  imports.  The  Gold  Ex- 
change, and  all  the  horde  of  speculators  and  ex- 
change and  bullion  dealers  who  made  and  lost 
fortunes  during  those  years,  were  the  product  of 
this  dual  monetary  unit,  and  the  cost  of  it  all  to 
the  legitimate  industry  of  the  country  is  beyond 
computation. 

The  duty  of  the  government,  therefore,  in  re- 
spect to  this  matter,  is  to  establish  a  monetary 
unit,  and  to  provide  against  its  being  changed 
except  by  such  universal  consent  as  is  requisite 
to  effect  a  constitutional  amendment.  In  selecting 
the  unit  many  considerations  arise  which  can  be 
better  considered  after  the  important  subject  of 
value  has  been  fully  inquired  into  ;  but  meanwhile 
it  is  well  to  glance  at  the  scope  of  this  question. 

Since  all  the  various  forms  of  our  money  are 
used  for  measuring  values,  the  dollar  bears  to 
values  the  relation  which  an  inch  bears  to  meas- 
urements of  extension.  Now,  from  an  industrial 


106  THE  PEOPLE'S  MONEY 

point  of  view,  we  may  regard  the  United  States 
as  a  great  workshop,  and  its  people  generally  as 
workmen,  each  of  whom  must  constantly  fit  and 
shape  his  work,  as  to  value,  with  a  view  to  the 
value  of  some  work  being  simultaneously  executed 
by  other  workmen ;  and  money  is  the  value-rule 
by  which  alone  these  indispensable  adjustments 
may  be  accurately  and  certainly  made.  Now  im- 
agine an  ordinary  workshop  where  the  foot-rules 
are  not  on  the  same  scale ;  where  the  unit  of 
linear  measure  —  the  inch  —  is  not  definite  nor 
fixed,  so  that  the  inches  and  the  feet  marked  on 
one  man's  rule  do  not  correspond  with  the  inches 
and  the  feet  marked  on  the  rule  of  another  man 
engaged  on  a  different  part  of  the  same  work. 
Would  there  not  be  inextricable  confusion  and 
wrangling  among  the  men,  attended  with  spoil- 
ing of  material  and  consequent  loss  and  vexation 
to  the  proprietor?  Would  there  not  be  neces- 
sarily a  spontaneous  halt  in  the  work,  and  a 
simultaneous  demand  that  some  one  of  the  vari- 
ous inches  be  selected  as  a  standard,  and  that 
all  rules  that  differed  from  the  standard  be  ban- 
ished, and  even  destroyed  utterly  ? 

Now  money,  as  a  measure  of  value,  sustains 
toward  the  specialized  and  differentiated  indus- 
tries of  this  country,  relations  precisely  like 
those  which  foot-rules  sustain  to  the  specialized 
and  differentiated  employments  into  which  the 
work  of  a  great  machine-shop  is  distributed,  and, 
therefore,  if  the  dollar,  which  is  "  the  unit  of  the 


THE  MONETARY  UNIT  107 

money  of  account,"  lacks  definiteness  and  sta- 
bility of  value,  the  currency  will  be  incessantly 
distributing  over  the  country  inaccurate  value- 
rules.  An  industrial  people,  subjected  by  their 
government  to  the  use  of  such  a  currency,  are  just 
as  badly  treated  as  would  be  the  hands  in  a 
machine-shop  who  should  be  furnished  with  de- 
fective and  inaccurate  foot-rules,  and  then  held 
accountable  for  material  spoiled  and  time  lost 
by  misfits. 

One  step  further :  while  the  United  States  may 
be  regarded  as  a  great  workshop,  yet  it  is  only  a 
branch  of  the  still  greater  workshop  of  the  world 
at  large.  The  extent  to  which  our  industries  are 
correlated  with  those  of  other  countries  may  be 
seen  from  the  magnitude  of  our  foreign  com- 
merce. The  products  of  our  industry  which  are 
exported,  and  the  imported  products  of  the  indus- 
try of  other  countries,  are  interchanged  commodi- 
ties. This  interchange  depends  upon  comparison 
of  values,  like  that  obtaining  in  domestic  trade, 
and,  as  we  have  seen,  comparison  of  values  is  ren- 
dered possible  only  by  the  use  of  a  common  mon- 
etary unit. 

Our  agricultural,  mining,  manufacturing,  and 
other  industries,  are  more  or  less  concerned  in 
our  foreign  commerce,  hence  the  people  en- 
gaged in  these  industries  are  to  that  extent 
fellow-workmen  with  consumers  and  producers 
in  other  nations.  The  value-rule  in  use  among 
us  should,  therefore,  bear  a  definite,  known,  and 


108  THE  PEOPLE'S  MONEY 

unchangeable  relation  to  the  value-rules  in  use 
among  the  people  with  whom  we  trade.  While 
it  would  be  more  convenient  to  have  but  one 
monetary  unit  for  all  the  world,  it  is  not  neces- 
sary to  do  so.  Different  nations  may  still  retain 
those  they  are  accustomed  to,  but  it  is  absolutely 
essential  that  each  of  these  should  be  immutable 
in  real  value,  and  that  they  should  all  be  alike 
in  material,  for  identity  of  metal  can  alone  in- 
sure identity  of  intrinsic  value  in  equal  weights. 
The  pound  sterling,  the  franc,  the  mark,  and 
the  dollar  need  not  agree  in  value,  but  they 
should  be  only  degrees  in  one  common  and  fixed 
value-scale,  so  that  it  can  never  be  a  matter  of 
doubt  or  uncertainty  what  is  the  equivalent  of  a 
pound  in  dollars,  marks,  or  francs,  nor  what  frac- 
tion of  a  dollar  is  the  precise  equivalent  of  a 
franc,  a  mark,  or  a  shilling.  How  this  may  be 
secured  will  more  fully  appear  hereafter. 


CHAPTEE  X. 

LEGAL  TENDER 

The  term  "legal  tender"  is  a  technical  expres- 
sion signifying-  that  which  the  law  prescribes  to 
be  paid  or  tendered  in  order  to  discharge  a  debt, 
satisfy  a  judgment,  fulfil  a  money  contract,  or  pay 
taxes.  A  system  of  law  that  recognizes  the  obli- 
gation of  contracts  is  incomplete  unless  it  also 
enforces  their  performance.  When  the  contract 
is  to  pay  a  sum  of  money,  the  law  requires  the 
stipulated  sum  of  money  to  be  paid  specifically. 
When  the  contract  is  to  do  a  certain  thing,  the 
law  requires  that  thing  to  be  done  specifically, 
and  when  it  is  impossible  to  enforce  specific  per- 
formance modern  laws  require  the  defaulter  to 
pay  a  money  indemnity.  Every  person  under 
contract  to  pay  money,  or,  under  judgment,  to 
pay  a  sum  of  money  or  a  money  indemnity,  in 
default  of  specific  performance  of  contract,  is  a 
debtor  for  the  money  thus  to  be  paid,  and  the  law 
which  adjudges  him  a  debtor  must  settle  what  is 
to  constitute  full  and  sufficient  payment  whereby 
he  may  be  relieved  from  the  obligation  of  debt. 

Hence  it  comes  that  in  all  countries  where  the 
laws  recognize  the  obligation  of  contracts,  and 


110  THE  PEOPLE'S  MONEY 

enforce  performance  of  them,  the  laws  also  pre- 
scribe a  legal  tender  money,  and  it  is  obvious  that 
the  main  principle  underlying  the  establishment 
of  a  legal  tender  is  that  it  is  something  fixed, 
something  upon  the  steadfastness  of  which  people 
may  depend  when  coming  under  an  obligation  or 
a  liability.  Fixed  as  to  what?  Steadfast  as  to 
what  ?  Necessarily  as  to  value,  because  value  is 
the  only  quality  pertinent  to  the  effectiveness  of  a 
legal  tender.  Our  commonest  money  obligations, 
promissory  notes,  drafts,  bills  of  exchange,  contain 
the  acknowledgment  of  the  signer  that  he  has  re- 
ceived value  for  them  ;  "  value  received "  is  an 
invariable  phrase  in  every  such  instrument.  Every 
bond,  every  contract,  rests  upon  an  acknowledg- 
ment of  value  received,  in  consideration  whereof 
the  contract  is  undertaken  or  the  bond  executed. 

The  very  object,  therefore,  of  a  legal  tender  law 
—what  the  French  call  its  raison  d'etre  (reason  for 
existing);  what  the  old  school-men  would  have 
called  its  "  final  cause  "  (cause  for  which  it  was 
enacted) — must  necessarily  be  to  establish  a  fixed 
and  immutable  measure,  or  standard,  by  which  the 
value  repaid  or  returned  may  be  compared  with 
and  made  equal  to  the  value  acknowledged  to  have 
been  received,  and  in  other  cases  by  which  the 
value  paid  in  satisfaction  of  a  debt,  or  a  judg- 
ment, may  be  compared  and  equalized  with  the 
value  agreed  or  adjudged  to  be  payable  therefor. 

This  being  the  nature  and  the  object  of  all  legal 
tender  laws,  reason  itself  requires  that  when  such 


LEGAL  TENDER  111 

a  law  gives  legal  tender  force  to  several  kinds  of 
money,  these  kinds  of  money  must  be  always  pre- 
served at  equal  value,  for  if  they  are  not  so  pre- 
served the  nature  of  the  legal  tender  law  is  vio- 
lated and  its  essential  object  is  defeated.  This  is 
not  only  a  requirement  of  reason,  but  it  is  also 
demanded  by  that  spirit  of  justice  which  is  the 
soul  of  law  and  should  be  the  animating  principle 
of  all  legislation.  Legal  tender  laws  control  the 
execution  of  contracts,  and  every  contract  em- 
braces two  or  more  persons,  sustaining  to  each 
other  complementary  relations,  between  or  among 
whom  justice  requires  that  these  relations  be  kept 
in  equilibrium.  Every  debt,  every  indemnity,  pay- 
able in  money,  necessarily  involves,  on  one  side, 
one  or  more  persons  bound  to  pay,  and,  on  the 
opposite  side,  one  or  more  persons  entitled  to  re- 
ceive ;  for  every  obligation  there  is  a  right,  every 
dollar  to  be  paid  is  also  a  dollar  to  be  received. 

The  essence  of  these  reciprocal  relations  is 
equality,  and  that  equality,  which  is  mutually  ac- 
knowledged to  have  existed  at  the  initial  stage  of 
the  contract,  namely,  equality  of  the  value  re- 
ceived at  the  date  of  the  note  or  bond,  with  the 
value  agreed  to  be  returned  at  its  maturity,  lives 
through  the  life  of  the  instrument  which  repre- 
sents the  contract,  so  that,  when  the  period  of  its 
temporary  alienation  has  expired,  the  value  trans- 
ferred may  return  unimpaired  whence  it  came. 
The  whole  theory  of  a  money  penalty  for  de- 
fault of  specific  performance  rests  upon  the  doc- 


112  THE  PEOPLE'S  MONEY 

trine  here  set  forth,  and  this  doctrine  also  under- 
lies all  taxation,  for  without  fixed  value  in  the 
medium  of  payment  the  taxing-  power  can  neither 
provide  adequately  for  the  public  needs  nor  gauge 
the  burden  laid  on  the  tax-payers. 

At  every  stage  of  this  inquiry  we  have  found 
one  and  the  same  truth  underlying  the  surface 
wherever  we  have  probed,  and  that  is,  that  money 
is  sought  only  for  its  power  to  command  its  worth 
in  something  else.  Not  money  but  money's  worth, 
not  the  dollar  but  the  dollar's  worth,  is  the  motor 
of  industry,  the  propelling  force  behind  human 
enterprise  and  endeavor.  This  truth  is  the  key  to 
the  obligations  of  governments  in  respect  to  legal 
tender  money;  they  are  bound  to  preserve  its 
value,  its  true  worth.  The  name  of  the  coin,  the 
denomination  of  the  note,  is  absolutely  naught; 
the  value  is  the  essence  of  the  matter ;  equality  of 
value,  not  identity  of  substance,  between  the  thing 
borrowed  and  the  thing  returned;  equality  of 
value,  not  specific  identity,  between  the  thing 
promised  and  the  thing  performed,  will  alone  con- 
tent the  avidity  of  justice  for  what  is  right. 

A  practical  question  arises  here  :  Under  our 
laws  four  kinds  of  money  are  made  legal  tender- 
gold  coins,  silver  standard  dollar  coins,  coin  cer- 
tificates, and  greenbacks.  The  doctrine  just  laid 
down  obligates  the  government  to  preserve  an 
equality  of  value  among  these,  but,  at  present, 
the  intrinsic  values  of  the  gold  and  silver  coins 
are  wide  apart,  while  the  coin  certificates,  and, 


LEGAL  TENDER  113 

according"  to  some  authorities,  the  greenbacks  also, 
are  redeemable  in  either  gold  or  silver  dollars,  at 
the  option  of  the  government.  Now  it  is  possi- 
ble, and  by  many  considered  probable,  that,  under 
the  continued  purchase  of  silver  bullion,  following 
the  compulsory  coinage  of  standard  silver  dollars, 
it  will  become,  sooner  or  later,  impracticable  to 
preserve  an  equality  of  value  between  the  gold 
and  silver  coins,  unless  new  means  are  adopted  to 
that  end.  Gold  may  become  demonetized  and  re- 
vert to  the  condition  of  a  commodity,  in  which 
case  the  government,  not  being  able  to  take  in 
enough  gold  in  its  revenues  to  redeem  the  green- 
backs in  that  coinage,  may  have  to  redeem  them 
in  standard  silver  dollars. 

In  this  case  the  equality  of  value  of  the  four 
kinds  of  money  will  be  dissolved,  while,  as  has 
been  shown,  the  government  is  under  the  highest 
obligation,  both  of  reason  and  of  justice,  to  main- 
tain the  four  at  the  same  value,  in  order  that  they 
may  all  be  available  equally,  as  the  law  prom- 
ised, to  serve  as  legal  tender  for  obligations  in- 
curred when  they  were  of  the  same  value.  It  is, 
of  course,  obvious  that  in  such  an  event  the  gov- 
ernment could  never  pay  the  premium  on  what- 
ever gold  might  be  required  to  liquidate  all  such 
contracts,  nor  is  there  any  other  way  in  which 
the  loss  to  the  people  can  be  made  up,  if  once 
the  equilibrium  of  value  among  the  four  kinds  of 
money  should  be  destroyed  ;  hence,  now,  while  the 
equilibrium  exists,  Congress  is  bound  to  use  every 
8 


114  THE  PEOPLE'S  MONEY 

means  to  preserve  it,  and  the  people  should  exact 
legislation  to  this  end  while  yet  there  is  time  to 
prevent  so  irremediable  a  disaster. 

However  unstable  the  equilibrium  between  the 
gold  and  silver  coinage  may  have  become  under 
the  disturbing  influences  exerted  by  financial 
changes  abroad  and  short-sighted  legislation  at 
home,  it  is  still  in  the  power  of  the  government 
to  restore  its  stability. 

1st.  Let  all  compulsory  coinage  laws  and  silver 
purchase  laws  be  repealed.  This  will  relieve  the 
Treasury  of  the  strain  upon  it  made  by  these  laws, 
and  in  that  way  fortify  the  credit  of  the  executive 
branch  of  the  government.  It  will  also  relieve 
apprehension  as  to  our  getting  down  to  the  stand- 
ard silver-dollar  basis,  which  will  fortify  the  credit 
of  the  legislative  branch  of  the  government  by  fur- 
nishing evidence  of  its  intelligence  and  its  regard 
for  justice. 

2d.  Let  these  two  branches  of  the  government 
unite  in  such  legislation  as  will  make  twenty -five 
and  eight-tenths  grains  of  gold,  nine  hundred 
fine,  the  permanently  settled  monetary  unit  of  this 
country,  and  in  affirming  that  the  government 
has  guaranteed,  and  is  bound  to  maintain,  the 
standard  silver  dollars  at  a  parity  in  legal  tender 
quality  with  this  standard  gold  dollar,  by  main- 
taining their  inter  convertibility  at  the  Treasury. 
If  these  things  are  done,  the  credit  of  the  gov- 
ernment thus  reinforced  will  be  sufficient  to  sup- 
port so  much  of  the  nominal  value  of  the  stand- 


LEGAL  TENDEK  115 

arcl  silver  dollars  as  now  overhangs  their  intrinsic 
value,  and  the  solidarity  of  our  coinage  will  be 
strengthened  and  perpetuated. 

3d.  The  good  work  accomplished  by  these 
measures  would  be  perfected,  and  the  people's 
money  would  for  all  time  be  secured  against 
legislative  attack,  if  the  Supreme  Court  should 
reverse  its  legal  tender  decision  and  limit  Con- 
gress, as  the  States  are  limited,  to  gold  and  silver 
as  legal  tender  money. 


CHAPTEE  XI. 

THE  MATEEIAL  AND  FORM  OF  MONEY 

Since  the  government  is  charged  with  the  duty 
of  determining  what  the  people's  money  shall  be, 
it  is  well  to  inquire  at  this  point  what  latitude  of 
choice  exists  as  to  material  and  form.  Disregard- 
ing for  the  moment  the  numerous  substances  tried 
and  abandoned  during  the  world's  gropings  after 
a  suitable  material  for  money,  we  may  assume 
that  at  the  present  day  no  enlightened  govern- 
ment would  attempt  to  use  anything  as  money  ex- 
cept coins  of  gold,  silver,  and  copper  (or  nickel), 
or  else  paper  suitably  prepared  and  printed  to 
protect  the  public  against  counterfeits.  It  may 
be  said,  therefore,  that  the  material  of  money 
nowadays  must  be  either  metal  or  paper. 

There  is  not  much  more  latitude  of  choice  as  to 
form;  metal  used  as  money  is  cut  and  stamped 
into  coins,  of  which  the  weight  and  fineness  are 
definitely  established  by  law ;  paper  used  as 
money  is  especially  manufactured,  printed  from 
engraved  plates,  and  attested  as  genuine  by  the 
signatures  of  officials  commissioned  for  the  pur- 
pose. Narrow  as  those  limits  appear  to  be,  there 


THE  MATERIAL  AND  FORM  OF  MONEY      117 

is  yet  room  within  them  for  the  introduction  of 
elements  of  mischief,  wide-spread  in  their  effects 
and  disastrous  to  industry,  as  well  as  to  social 
welfare.  The  history  of  all  ages  is  full  of  in- 
stances in  which  the  rapacity  of  rulers  brought 
distress  upon  their  people  through  the  debase- 
ment of  metallic  coinages,  while  the  evil  conse- 
quences of  issues  of  paper  money  are  among  the 
saddest  episodes  in  the  annals  of  modern  nations. 
It  is  important,  therefore,  to  inquire  what  prin- 
ciples should  govern  the  coinage  of  metals  and 
the  creation  of  paper  currency. 

Before  proceeding  to  these  inquiries,  however, 
it  is  necessary  to  point  out  the  difference  between 
these  two  kinds  of  money  :  Coins  possess  intrinsic 
value ;  that  is,  the  substance  of  which  they  are 
made  is  valuable  in  itself.  Whether  coined  or  not, 
gold,  silver,  and  copper  are  valuable  as  metals, 
and  their  value  is  nearly  the  same  all  the  world 
over.  Paper  money  has  practically  no  intrinsic 
value ;  its  money-force  depends  upon  law,  or  upon 
the  financial  credit  of  the  government,  or  the  cred- 
it of  a  bank ;  sometimes  certificates,  representing 
coins  of  gold  or  silver  deposited  in  the  Treasury, 
and  redeemable  in  such  coins,  are  used  as  money. 
Paper  money  generally  expresses  an  obligation  or 
a  promise  ;  it  usually  implies  a  contract  or  a  trust, 
and  its  value,  derived  wholly  from  these,  depends 
for  its  continuance  upon  the  public  confidence 
that  the  promise  or  obligation  will  be  fulfilled, 
the  trust  or  contract  executed.  Beyond  the  limits 


118  THE  PEOPLE'S  MONEY 

within  which  this  confidence  suffices  to  give  it  cur- 
rency, paper  money,  whether  in  the  form  of  Bank 
of  England  notes,  greenbacks,  National  Bank 
notes,  or  coin  certificates,  loses  its  money  func- 
tion ;  it  has  no  force  to  pay  wages,  or  to  pass 
from  hand  to  hand  in  the  ordinary  course  of  daily 
traffic. 

There  is  another  very  important  difference  be- 
tween coins  and  paper  money.  The  value  of 
coins,  being  in  their  substance,  is  not  affected  by 
or  dependent  on  what  is  stamped  or  imprinted 
upon  them,  for  the  devices  on  a  coin  constitute 
merely  a  label  as  to  fineness  and  weight,  put 
there  in  order  to  save  the  time  and  expense  of 
testing  the  weight  and  fineness  of  each  coin  every 
time  it  passes  from  one  person  to  another;  but 
the  value  of  paper  money  is  altogether  deter- 
mined by  what  is  printed  on  it ;  change  this  and 
the  value  is  changed  accordingly ;  remove  it,  and 
all  value  vanishes  from  the  defaced  paper.  But 
paper  money  may  have  its  value  reduced  or  de- 
stroyed without  change  of  purport,  for  what  is 
printed  on  the  paper  is  an  obligation,  or  promise, 
or  contract  to  pay  money,  and  if  the  promisor, 
whether  a  government  or  a  bank,  cannot  or  will 
not  pay,  or  quibbles  about  the  medium  of  pay- 
ment, or  if,  through  design  or  ignorance,  the  laws 
relating  to  the  matter  are  tampered  with,  the 
value  of  the  engagement  will  be  correspondingly 
affected;  while,  on  the  other  hand,  the  intrinsic 
value  of  coins  can  be  neither  chang-ed  nor  de- 


THE  MATEEIAL  AND  FOKM  OF  MONEY     119 

stroyed  by  the  acts  or  omissions  of  governments, 
banks,  or  individuals.  Coined  metal  is  beyond 
the  reach  of  political  strife ;  it  is  free  from  dan- 
ger by  reason  of  disaster,  panic,  or  war.  Earth- 
quakes, revolutions,  the  rise  and  fall  of  empires, 
have  been  powerless  to  impair  by  a  fraction  the 
value  inhering  in  the  coins  sewed  in  the  garments 
of  trembling  towns-people  or  hidden  in  the  huts 
of  a  terrified  peasantry.  Here  is  the  peculiar 
merit  of  metallic  money ;  its  value  is  independent 
of  the  will  and  the  fate  of  princes,  of  govern- 
ments, and  of  corporations. 

Paper  currency,  on  the  other  hand,  is  created 
by  statute ;  every  note  has  value  conferred  upon 
it  solely  by  the  stroke  of  the  pen  recording  an 
official  signature.  A  greenback  or  bank-note  of 
$1,000  contains  no  more  paper  and  ink  than  one 
for  only  $5 ;  it  costs  no  more  to  produce  the  one 
than  the  other ;  the  difference  of  intrinsic  value  is 
either  nil  or  inappreciable.  Paper  money,  how- 
ever widely  disseminated  among  the  people,  for- 
ever draws  its  force  and  virtue  from  a  source  ab- 
solutely controlled  by  the  government,  just  as  the 
lights  of  a  great  city  depend  upon  a  continuous 
supply  of  gas  or  electricity  from  some  central  sta- 
tion. The  money  life  of  such  currency  depends 
wholly  upon  the  continuous  sustaining  force  of 
the  law;  interrupt  this,  and  it  droops  depreci- 
ated ;  cut  oft  this  support  by  repealing  the  law  or 
disabling  the  government,  and  the  currency  dies, 
as  the  lights  go  out  when  the  gas  is  turned  oft'. 


120  THE  PEOPLE'S  MONEY 

Every  note  that  draws  vitality  from  the  law  per- 
ishes with  the  repeal  of  the  law,  or  with  the 
downfall  or  bankruptcy  of  the  government,  even 
though  it  be  locked  in  a  hidden  recess  a  thousand 
miles  away  from  the  seat  of  legislation  or  the 
theatre  of  revolution,  and  hence  it  is  essential 
for  the  people  that  the  government  upon  which 
paper  money  depends  for  maintenance  of  value 
should  be  trustworthy  and  stable. 

In  countries  where  the  government  is  distinct 
from  the  people,  where  a  few  classes  dominate 
and  the  masses  are  held  in  subjection,  it  is  very 
difficult  for  the  government  to  maintain  paper 
money  at  its  full  value,  or  even  at  equable  value. 
The  people  know,  by  the  experience  of  previous 
generations,  that  no  money  is  safe  for  them  but 
that  which  carries  its  face  value  within  itself. 
They  are  rightly  afraid  to  trust  a  currency  that 
may  have  its  value  turned  off  at  Vienna  or  St. 
Petersburg  while  they  are  ploughing  the  land  in 
some  far  Hungarian  field,  or  tending  cattle  on  the 
slopes  of  the  Caucasus.  The  stability  of  the 
government  may  not  be  doubted,  but  the  people 
do  not  trust  their  rulers.  In  our  country  the  gov- 
ernment is  controlled  by  the  people,  and,  there- 
fore, the  people  do  not  distrust  it  in  matters  upon 
which  there  is  an  intelligent  concurrence  of  public 
sentiment ;  but,  unfortunately,  financial  principles 
are  but  little  understood  by  the  people  and  even 
by  many  of  their  representatives,  and,  as  in  pri- 
vate life,  men  suffer  in  fortune,  and  even  in  repu- 


THE  MATERIAL  AND  FORM  OF  MONEY     121 

tation,  by  their  own  ignorance  and  mistakes,  as 
well  as  by  the  ignorance  and  mistakes  of  their 
agents,  so  the  people  of  the  United  States  may 
have  the  miseries  of  a  depreciated  currency 
turned  loose  among  them  by  a  popular  clamor 
for  unwise  legislation  or  by  mere  blunders  at 
Washington. 

A  depreciated  currency,  whether  metallic  or 
paper,  is  the  sum  of  all  monetary  evils;  it  is 
worse  in  its  effects  than  war  or  pestilence ;  it 
seeks  out  and  ruins  the  most  secure  and  the  most 
secluded ;  it  brings  widows  and  orphans  to  pen- 
ury ;  it  corrupts  the  virtuous,  disheartens  the  in- 
dustrious, destroys  the  helpless ;  it  breeds  rapac- 
ity, pampers  vice,  and  sets  up  gambling  as  a 
substitute  for  profitable  toil. 

It  may  be  asked,  How  may  a  government  secure 
its  people  against  the  danger  of  the  currency  be- 
coming depreciated  ?  The  answer  is :  A  govern- 
ment should  never  make  anything  lawful  money 
but  coins  of  metal,  and  paper  convertible  into 
such  coins  on  demand  of  the  holder.  Govern- 
ment may  properly  provide  for  the  safe-keeping 
of  coins  deposited  in  its  treasury,  or  in  banks, 
and  for  supplying  certificates  of  such  deposits,  so 
as  to  afford  its  people  the  convenience  of  trans- 
mitting large  values  in  small  compass,  but  it 
should  never  force  upon  them  by  law  the  use  of 
a  credit  currency,  unless  under  the  stress  of  an 
overruling  necessity,  and  then  the  ultimate  con- 
vertibility into  coin  of  such  currency  should  be 


122  THE  PEOPLE'S  MONEY 

assured  and  studiously  maintained.  The  reason 
for  these  conclusions  will  appear  all  through  this 
treatise. 

There  is  no  reason,  moreover,  from  a  financial 
point  of  view,  though  there  may  be  political  rea- 
sons against  it,  why  the  United  States  govern- 
ment, after  establishing,  under  constitutional 
sanction,  an  unchangeable  monetary  unit,  should 
not  provide  in  its  laws  for  a  system  of  banks  of 
issue,  which  may  supply  to  the  currency  an  ele- 
ment adjustable  in  volume,  under  natural  laws,  to 
the  varying  needs  of  industry.  This  question  will 
be  subsequently  discussed ;  but  meanwhile,  as  a 
guide  to  the  principles  that  should  be  observed 
in  determining  what  the  material  and  form  of 
money  should  be,  and  with  a  view  to  exposing 
the  baselessness  of  certain  prejudices  and  popular 
errors,  it  may  be  well  to  review,  briefly,  the  his- 
tory of  metallic  money. 

When  Ephron  named  four  hundred  shekels  of 
silver  as  the  price  of  his  land,  he  designated  a 
weight  of  metal,  not  a  number  of  coins.  It  was 
a  great  advance  toward  convenience  when,  about 
eleven  hundred  years  after  Abraham's  time,  money 
was  first  coined  in  pieces  of  definite  weight,  for 
then  the  scales  of  the  money-changer  could  be 
dispensed  with,  and  payments  could  be  made  by 
counting  the  coins  instead  of  by  weighing  bars 
and  lumps  of  metal ;  nevertheless,  so  little  need 
was  there  apparently  for  the  use  of  coins  that 
the  new  invention  spread  but  slowly  from  Argos, 


THE  MATERIAL  AND  FOBM  OF  MONEY  123 

where  it  is  said  to  have  had  its  origin.  The  earli- 
est coins  appear  to  have  been  made  of  brass,  and 
afterward  of  iron  and  copper ;  silver,  being  used 
only  in  large  payments  and  passing  by  weight,  was 
not  coined  until  long  afterward.  The  occasions 
for  the  use  of  silver  as  money  were  so  infrequent 
in  these  early  ages  that  no  popular  need  would 
have  been  subserved  by  coining  it,  and  for  the 
same  reason  it  was  later  still  that  gold  coins  came 
into  use. 

While  the  use  of  coins  was  tardily  resorted  to, 
and  has  been  but  slowly  developed,  the  metals 
gold  and  silver  were  used  in  the  arts  and  for 
personal  ornament  throughout  Europe,  Asia,  and 
Africa  in  the  remotest  antiquity  of  which  any 
trace  has  come  down  to  us.  They  were  so  used 
also  by  the  aboriginal  races  of  North  and  South 
America,  but  nowhere  in  either  of  these  two  con- 
tinents had  they  been  coined  into  money  up  to 
less  than  four  hundred  years  ago,  when  Euro- 
peans discovered  the  New  World.  It  appears, 
therefore,  that  everywhere  other  uses  of  gold  and 
silver  preceded  their  use  as  money.  Of  course,  as 
long  as  the  principal  demand  for  these  metals  was 
for  fabrication  into  vessels  and  ornaments,  dealers 
in  them  kept  frheir  stock  in  bars,  ingots,  or  other 
masses,  which  wealthy  men,  like  Abraham,  ac- 
quired in  trade  for  their  sheep  and  cattle.  It 
would  have  been  bad  economy  to  have  incurred 
the  expense  of  coinage,  even  if  coinage  had  then 
been  thought  of,  when  in  all  probability  the  coins 


124  THE  PEOPLE'S  MONEY 

would  very  soon  have  been  melted  down  and  cast 
into  vessels,  or  hammered  out  and  cut  into  rings, 
armlets,  and  other  trinkets,  simply  because  these 
things  were  much  more  generally  wanted  than 
coins  were. 

In  primitive  times  money  had  no  general 
sphere  of  circulation,  for  nearly  all  labor  was 
performed  by  slaves  or  dependants,  so  that  no 
money  was  required  for  wages ;  personal  ser- 
vice was  requited,  not  by  salaries  paid  in  money, 
but  by  protection,  shelter,  and  maintenance ;  but 
few  industries  were  pursued  for  gain,  and  trade 
consisted  largely  of  barter.  Afterward,  as  in- 
dustrial pursuits  became  varied,  money  came  into 
use,  as  has  heretofore  been  described  (see  Chap- 
ter V.),  and  at  each  stage  the  material  of  money 
bore  a  relation  to  the  value  of  labor.  Now  in- 
dustry has  become  almost  universal  and  is  in- 
finitely varied,  and  each  worker  is  entirely  master 
of  his  own  earnings,  so  that  money  is  indispen- 
sable to  the  daily  life  of  hundreds  of  millions  of 
men,  women,  and  children,  and  the  material  of 
money  has  increased  in  value  with  the  rising 
value  of  the  labor  which  it  measures,  and  the 
increasing  volume  of  the  transactions  it  liqui- 
dates. The  world  has  outgrown  brass,  iron,  and 
copper,  successively  used  as  money,  and  these 
metals  are  now  all  too  low  in  value,  in  propor- 
tion to  their  weight  and  bulk,  to  serve  the  needs 
of  industry  among  the  more  advanced  nations, 
although  copper  coins  are  still  found  in  circula- 


THE   MATERIAL  AND  FORM  OF  MONEY     125 

tion  among  peoples  less  advanced.  Gold  and  sil- 
ver are  the  metals  now  chiefly  used  as  money  in 
Europe  and  America,  and  coins  made  of  either 
metal  are  generally  slightly  more  valuable  than 
an  equal  weight  of  the  same  metal  uncoined; 
hence  coins  are  now  seldom  melted  down  or  ham- 
mered and  cut  into  ornaments,  unless  some  vi- 
cious or  ignorant  coinage  law  contravenes  the 
natural  laws  which  determine  the  relative  value 
of  these  two  metals.* 

The  intrinsic  value  of  gold  and  silver  is  not  a 
mysterious  quality  conferred  upon  these  metals 
providentially  under  the  divine  economy,  with  a 
view  to  confining  mankind  to  the  use  of  either  or 
both  of  them  as  money ;  they  are  not  as  useful  in 
other  respects,  nor  as  necessary  to  civilization 
and  to  human  happiness  as  iron  is.  Iron  pos- 
sesses intrinsic  value  just  as  definite  and  just  as 
firmly  established  as  the  intrinsic  value  of  gold 
and  silver,  and  iron  was  just  as  useful  for  money 
in  Sparta  as  silver  was  in  Athens.  The  com- 
mon sense  of  the  matter  is,  that  mankind  has 
become  satisfied  by  experiment  that  silver  and 
gold  are  the  best  metals  to  be  used  as  money 
at  the  present  time,  and  when,  if  ever,  they  be- 
come satisfied  that  either  of  them  can  be  ad- 
vantageously dispensed  with  for  such  use,  that 
niet.al  will  cease  to  be  used  for  money,  and  no 

*  In  such  a  case  the  mint  becomes  merely  a  public  and  gra- 
tuitous assayer  for  dealers  in  bullion,  both  in  the  country  that 
owns  the  mint  and  out  of  it. 


126  THE  PEOPLE'S  MONEY 

amount  of  sentiment,  no  force  of  declamation,  can 
prevent  its  disuse. 

"In  international  trade  gold  and  silver  bullion 
are  almost  as  available  as  coins  ;  indeed,  unless 
the  coins  of  one  country  are  by  law  made  cur- 
rent in  another,  coins  outside  of  the  country  of 
their  issue  are  rated  entirely  by  their  bullion 
value,  which  is  determined  by  their  fineness  and 
weight,  irrespective  of  the  monetary  denomina- 
tion stamped  upon  them.  In  the  United  States 
English  sovereigns  or  French  twenty-franc  pieces 
are  valued  as  so  much  uncoined  gold ;  in  Europe 
American  eagles  are  valued  in  like  manner. 

Our  gold  coins  are  worth  as  much  abroad  as  at 
home,  because  here  we  rate  them  at  their  true 
bullion  value  in  the  world's  market  as  is  done 
abroad,  but  it  is  otherwise  with  our  silver  coins, 
which  we  rate  above  their  bullion  value.  Here 
five  silver  dollars,  ten  half-dollars,  or  fifty  dimes 
will  buy  as  much  as  a  five-dollar  gold  piece  ;  but 
in  Europe,  at  the  present  time,  the  quantity  of 
silver  required  to  buy  what  could  be  bought  with 
a  half-eagle,  would  make,  in  our  coins,  more  than 
seven  dollars  and  a  half.  Hence  it  is  apparent 
that  our  silver  coinage  is  not  available  in  foreign 
trade,  since  the  coins  are  worth  more  at  home  than 
abroad,  and  more  than  the  bullion  out  of  which 
they  are  made.  A  man  who  desires  to  place  $1,- 
000  in  London  or  Paris  may  do  so  by  shipping 
there  fifty  (50)  double-eagles,  or  one  hundred  (100) 
eagles,  or  two  hundred  (200)  half-eagles,  but  if  he 


THE  MATERIAL  AND  FORM  OF  MONEY     127 

had  to  ship  standard  silver  dollars  to  the  same 
value  it  would  require  more  than  1,500  of  them. 

Of  course,  therefore,  he  will  ship  the  gold  rather 
than  the  silver,  because  while  these  several  quan- 
tities of  coins  would  be  of  equal  value  abroad, 
namely,  $1,000,  their  value  here  is,  for  the  gold 
pieces,  $1,000;  for  the  standard  dollars,  $1,250; 
and  for  half-dollars  and  dimes,  $1,867.50.  It  fol- 
lows that  all  silver  coined  in  the  United  States 
becomes  unavailable  for  export,  and  later  on  we 
shall  perceive  the  importance  of  keeping  in  cir- 
culation among  ourselves  as  much  as  we  can  af- 
ford of  every  sort  of  money  that  is  available  in 
the  foreign  trade. 

It  is  only  in  modern  times  that  paper  money 
has  come  into  use.  A  sketch  of  its  history  will  be 
found  in  Chapter  XIII. ;  but  it  may  be  well  at 
this  point  to  suggest  some  views  as  to  paper 
money  generally.  All  paper  currency,  whether 
issued  by  the  government  or  by  a  bank,  consists 
of  due  bills  only ;  these  due  bills  may  be  simply 
the  government  outlay,  or  they  may  represent 
taxes  to  be  collected,  or  gold  or  silver  coins  de- 
posited in  the  Treasury;  or  they  may  represent 
value  in  some  other  form  received  by  the  govern- 
ment or  by  the  banks.  History  teaches  that  it  is 
never  entirely  safe  for  any  people  to  entrust  the 
keeping  of  all  their  gold  and  silver  to  treasuries 
and  banks,  while  they  have  nothing  to  show  for 
it  but  a  paper  receipt ;  and  it  is  always  exceed- 
ingly unsafe  for  the  people,  especially  farmers, 


128  THE  PEOPLE'S  MONEY 

artisans,  and  laboring  men,  who  are  not  in  the 
way  of  keeping  up  with  financial  changes,  to  be- 
come wholly  dependent  upon  a  currency  that  has 
neither  gold  nor  silver  behind  it,  but  which  con- 
sists wholly  of  paper  representing  future  taxation, 
or  which  is  based  solely  upon  the  credit  of  a  gov- 
ernment, or  of  a  corporation  under  governmental 
control. 

Some  unthinking  people  are  deceived  by  the 
talk  of  politicians  who  harp  upon  such  phrases  as 
"Any  money  is  better  than  no  money"  and  that 
"  If  money  is  made  plentiful  it  will  be  easier  to 
get."  Only  a  moment's  reflection  should  be  need- 
ed to  detect  the  fallacies  in  this  silly  talk.  Every 
man,  every  child  knows  that  money  does  not  come 
into  people's  hands  for  nothing.  To  get  money 
one  must  earn  it  by  his  labor  or  his  brain,  or  else 
he  must  give  something  of  value  in  exchange  for 
it.  If  one  man  trades  horses  with  another  each  is 
very  careful  to  examine  the  animal  that  he  is  to 
receive,  and  he  exerts  all  his  powers  not  to  be  de- 
ceived into  accepting  one  that  is  unsound  or  other- 
wise not  equal  in  value  to  that  which  he  parts 
with. 

Now  why  should  such  a  man  forbear  to  exercise 
as  to  the  money  that  he  gets  for  his  labor,  his  tal- 
ents, or  his  property,  the  same  degree  of  scrutiny 
with  which  he  examines  the  horse  he  is  trading 
for  ?  Does  a  man  put  up  with  a  bad  horse  in  ex- 
change for  a  good  one  simply  because  bad  horses 
are  plentiful  ?  Are  not  bad  horses  harder  to  trade 


THE  MATERIAL  AND  FORM  OF  MONEY     129 

away  when  they  are  plentiful  than  when  they  are 
scarce  ?  Is  a  man's  labor,  or  his  crop,  not  always 
good  value,  and  should  they  not  at  all  times  be 
paid  for  in  money  that  has  equally  good  value  ? 
Can  a  man  afford  to  be  indifferent  as  to  whether 
the  money  he  gets  is  always  equally  good  ?  It  is 
certain  that  bad  money  can  never  be  so  plentiful 
that  wages  paid  in  it  will  go  as  far  when  they 
are  to  be  spent  as  wages  paid  in  good  money. 

If  the  government  supplies  the  money  it  ought 
to  take  care  that  all  of  it  is  equally  good,  and 
equally  good  at  all  times ;  but  this  cannot  be  de- 
pended upon  unless  the  people  understand  the 
difference  between  good  money  and  bad,  and  re- 
quire their  representatives  to  possess  that  knowl- 
edge also,  and  to  apply  it  in  legislation,  where 
alone  such  knowledge  can  be  applied  effectively. 
It  is  essential  that  popular  intelligence  should 
direct  legislation,  and  not  remain  inert  until  mis- 
chievous measures  have  already  been  adopted ; 
for,  as  was  shown  in  a  previous  chapter,  a  free 
people  are  no  better  off  than  the  subjects  of  an 
autocrat  when  once  their  money  is  in  circulation 
and  begins  to  depreciate  in  consequence  of  its 
losing  public  confidence. 


CHAPTEE  XII. 

COINED  MONEY 

In  the  preceding  chapter  it  has  been  shown 
that  gold  and  silver  are  now  practically  estab- 
lished as  the  prime  money  metals  of  the  world ; 
that  the  requirements  of  industry  at  home,  and  of 
foreign  commerce,  compel  our  government  to  the 
use  of  these  metals  in  its  coinage ;  and  we  now 
proceed  to  consider  how  this  is  at  present  pro- 
vided for,  and  what  changes,  if  any,  should  be 
made  in  our  laws  in  order  to  adapt  them  more 
perfectly  to  the  needs  of  the  people.  The  Act  of 
February  12,  1873,  supplemented  by  that  of  Feb- 
ruary 28,  1878,  constitutes  the  present  coinage 
laws  of  the  United  States.  The  former  Act  made 
the  gold  dollar  of  25T\  grains,  900  *  fine,  the  "  unit 
of  value,"  and  fixed  the  weights  of  all  coins  now 
existing,  except  the  "  standard  silver  dollar,"  which 
owes  its  existence  to  the  Act  of  February  28,  1878. 

An  understanding  of  the  coinage  law,  sufficient 
for  our  immediate  purpose,  may  be  obtained  by 

*  In  all  our  coins,  both  gold  and  silver,  there  are  900  parts  of 
pure  metal'and  100  parts  alloy. 


COINED  MONEY 


131 


an  inspection  of  the  following  table,  showing  the 
coins  now  established  as  legal  tenders  in  the 
United  States,  the  standard  weight  of  each,  and 
the  value  of  each,  as  measured  by  the  unit  of 
value,  viz.,  the  gold  dollar  of  25&  grains,  900 
fine  : 


Metals,  900  Fine. 

Denominations. 

Standard 
Weights, 
Grains. 

Value  Measured  by 
Unit  of  Value. 

Legal 

Value. 

Intrinsic 
Value. 

Silver     

Dime, 
Quarter-dollar, 
Half-dollar, 
Standard  dollar, 
Dollar, 
Quarter-eagle, 
Half  eagle, 
Eagle, 
Double-eagle, 

38.58 
96.45 
192.90 
412.50 
25.80 
64.50 
129. 
258. 
516. 

$.10 
.25 

.50 
1.00 
1.00 
2.50 
5.00 
10.00 
20.00 

$  .06*a 
.IS**- 
.30^ 
.65 
1.00 
2.50 
5.00 
10.00 
20.00 

Silver  

Silver  

Silver  

Gold  

Gold       

Gold  

Gold         

Gold 

It  appears  from  the  foregoing  table  that  while 
the  legal  value  of  the  different  coins  conforms  to 
their  respective  designations,  their  intrinsic  value 
differs  greatly.  Legally,  ten  standard  dollars  of 
silver  are  equal  to  an  eagle ;  intrinsically,  an  eagle 
is  worth  more  than  fifteen  such  dollars.  Legally, 
a  hundred  dimes  are  as  good  as  an  eagle ;  intrinsi- 
cally, the  eagle  exceeds  in  value  one  hundred  and 
sixty -four  dimes. 

The  question  naturally  presents  itself,  why  is 
there  such  inequality  of  intrinsic  value  among 
coins  constituting  a  single  system  of  coinage,  in 
which,  of  course,  all  parts  should  be  consistent 


132  THE  PEOPLE'S  MONEY 

with  each  other.  The  answer  is,  in  the  first  place, 
that  the  dimes,  quarter-dollars,  and  half-dollars 
are  subsidiary  coins,  legal  tender  for  only  small 
amounts,  and  these  were  intended  originally  to  be 
of  slightly  less  proportionate  value  than  the  gold 
dollar,  because  when  that  ratio  was  fixed  silver  was 
advancing  in  value,  and  if  these  pieces  had  been 
heavier  they  would  have  disappeared  from  circu- 
lation. In  the  second  place,  speaking  broadly, 
it  may  be  said  that  nearly  the  whole  inequality 
has  arisen  since  1873,  and  is  the  consequence  of 
a  great  decline  in  silver  without  corresponding 
changes  in  the  coinage  laws.  The  Act  of  1878 
affected  only  the  dollar  coin,  and  since  that  time 
silver  has  fallen  about  thirty  per  cent,  when  val- 
ued in  gold. 

It  is  needless  here  to  enter  upon  the  vexed  ques- 
tion as  to  whether  gold  has  advanced  in  value  or 
silver  has  declined ;  all  that  concerns  us  at  this 
stage  of  the  inquiry  is  the  fact  that  whereas,  some 
years  ago,  25  f$  grains  of  gold  was  constantly 
being  exchanged  for  412 1  grains  of  silver,  now 
25iV  grains  of  gold  will  command  in  exchange 
more  than  634|  grains  of  silver.  This  fact  con- 
cerns us  deeply,  because  our  laws  use  the  term 
dollar  to  signify  the  value  of  25T\  grains  of  gold, 
and  the  same  term  dollar  to  signify  the  value  of 
412J  grains  of  silver.  According  to  law,  these 
quantities  of  the  two  metals,  respectively,  are  of 
equal  value,  when,  according  to  fact,  the  ratio  of 
their  value  is  as  100  to  65. 


COINED  MONEY  133 

The  effect  of  this  state  of  things  is  that  the 
term  dollar  is  in  danger  of  losing  that  definiteness 
and  precision  as  an  expression  of  value  which  it 
should  possess  and  permanently  retain  unvaried, 
in  order  that  it  may  serve  the  purpose  intended 
by  its  designation  in  the  Act  of  April  2,  1792,  as 
the  "  unit  of  the  money  of  account."  That  act  is 
the  very  foundation,  and  the  only  foundation,  of 
all  the  dealings  of  the  people  with  respect  to 
money  and  other  values,  from  that  day  to  this. 
The  term  dollar  has  become  assimilated  with  the 
living  organism  of  American  industry ;  it  is  incor- 
porated into  our  daily  speech,  our  habits  of  busi- 
ness, of  thought,  and  of  action ;  our  methods  of 
computation,  and  our  system  of  reckoning.  It  has 
been  recognized  and  conformed  to  in  all  legisla- 
tion for  nearly  a  hundred  years,  and  to-day  the 
adults,  and  many  children,  in  our  whole  popula- 
tion of  70,000,000,  are  daily  and  hourly  depend- 
ing, in  matters  of  momentous  importance  to  them, 
upon  the  fixed  idea  of  value  associated  with  this 
word  dollar;  hence  there  is  no  computing  the  con- 
fusion and  distress  that  will  ensue  upon  its  losing 
the  essential  qualities,  definiteness  and  precision  as 
to  value. 

To  understand  the  present  position,  and  the 
necessity  for  remedial  legislation,  it  is  only  nec- 
essary to  consider  that  intrinsic  value  alone  con- 
stitutes natural,  and  therefore,  permanent  money 
force,  and  hence  that  our  different  coins  may 
come  to  be  rated  by  the  bullion  value  of  the  metal 


134  THE  PEOPLE'S  MONEY 

contained  in  each.  This  rating  would  make  a 
standard  silver  dollar  equal  to  IB^Vo  grains  of 
gold,  while,  as  has  been  said,  it  takes  25TV 
grains  of  gold  to  make  a  dollar  according  to  law. 
Now  the  law  cannot  be  supposed  to  mean  that 
16TVo  grains  of  gold  shall  be  equal  in  value  to 
25T80-  grains  of  gold,  although  this  inference  fol- 
lows from  the  above  facts,  according  to  the  axiom 
that  two  things  equal  to  the  same  thing  are  equal 
to  each  other ;  hence  we  must  seek  some  other  in- 
terpretation of  the  law  consistent  with  common 
sense. 

It  may  perhaps  be  said  that  the  intention  of  the 
law  is  to  make  these  coinages  of  equal  money 
force,  irrespective  of  value.  If  this  is  so,  how 
is  the  intention  of  the  law  to  be  carried  out? 
Money  force  is  value  in  exchange  for  commodi- 
ties; value  in  payment  of  debt.  If  it  were  not 
for  the  coercion  of  the  law,  412  J  grains  of  silver 
could  not  possibly  have  the  same  money  force  at 
the  present  time  as  25T\  grains  of  gold ;  therefore, 
money  force  conferred  by  law  must  be  something 
different  from  the  money  force  that  attaches  to 
value.  If  the  law,  therefore,  is  to  sustain  these 
two  quantities  of  metal,  respectively,  at  the  same 
money  force,  it  must  be  done  by  modifying  the 
natural  money  force  as  measured  by  their  intrin- 
sic value. 

There  are  only  three  conceivable  ways  of  ac- 
complishing this,  namely : 

1st.  Adding  to  the  deficient  intrinsic   value  of 


COINED  MONEY  135 

the  silver  enough  legal  force  to  bring  it  up  to  the 
intrinsic  value  of  the  gold. 

2d.  Using  legal  force  to  neutralize  so  much  of 
the  intrinsic  value  of  the  gold  as  is  in  excess  of 
the  intrinsic  value  of  the  silver ;  or — 

3d.  By  applying  legal  force  to  both  coinages,  so 
as  to  raise  the  silver  above,  and  reduce  the  gold 
below,  its  intrinsic  value  until  they  are  brought  to 
a  parity. 

These  are  obviously  the  only  conceivable  modes 
of  effecting  the  alleged  purpose  of  the  law,  and 
by  an  effort  of  abstract  reasoning  they  may  be, 
perhaps,  equally  conceivable,  but  they  are  by  no 
means  equally  practicable. 

If  the  government  could  impose  and  enforce  an 
export  duty  of  thirty-five  per  cent,  on  gold  in 
every  form  it  might  force  25T8o  grains  of  gold 
down  in  value  to  a  parity  with  412J  grains  of  sil- 
ver within  the  United  States,  but  this  cannot  be 
done.  No  export  duty  can  be  imposed  upon  gold, 
because  it  is  a  product  of  several  of  the  States,  and 
the  Constitution  forbids  export  duties  on  the  prod- 
ucts of  any  State ;  but  even  if  the  Constitutional 
prohibition  did  not  exist,  the  measure  would 
prove  futile,  because  history  shows  that  no  ex- 
port duties  on  the  precious  metals  can  be  en- 
forced. 

It  may  be  asserted,  therefore,  absolutely,  that 
there  is  no  way  in  which  our  government  can  re- 
duce the  value  of  25T8o  grains  of  gold,  either  to  an 
equality  with  412  \  grains  of  silver,  or  to  some 


136  THE  PEOPLE'S  MONEY 

intermediate  point  between  their  actual  relative 
values,  and,  therefore,  in  order  to  carry  out  the 
intention  of  the  law,  as  alleged,  the  412J  grains  of 
silver  in  the  standard  dollar  will  have  to  be  held 
up  to  the  level  of  value  of  25T8^  grains  of  gold. 
We  know  this  latter  alternative  is  practicable, 
because  the  credit  of  the  government  is  now 
holding  the  standard  silver  dollar  up  to  that 
level,  and  it  will  probably  be  able  to  continue  to 
do  so,  unless  the  mass  of  these  dollars  should 
prove  ultimately  too  great  for  the  sustaining 
force  of  the  government's  credit.  Since  412 \ 
grains  of  silver  are  worth  to-day  only  IGyV^  grains 
of  gold,  the  legal  force  added  to  this  value  to  bring 
the  money  force  of  the  standard  silver  dollar  up  to 
25T8o-  grains,  is  precisely  equivalent  to  9TW  of  gold. 
Take  away  this  legal  force  and  the  standard  silver 
dollar  will  have  only  its  value  force,  which  is  16T60V 
grains  of  gold. 

This  coinage  of  the  standard  silver  dollar  by 
the  government  is  a  new  departure  in  finance.  It 
was  begun  as  a  substitute  for  the  free  coinage  of 
silver,  when  the  ratio  between  the  value  of  gold 
and  silver  on  the  market,  though  but  little  differ- 
ent from  the  ratio  of  value  affixed  to  the  coins  by 
law,  was  nevertheless  sufficient  to  render  the  con- 
tinued free  coinage  of  silver  equivalent  to  debas- 
ing the  monetary  unit ;  but  since  the  law  of  Febru- 
ary, 1878,  was  passed,  the  ratio  has  widened  very 
materially,  so  that  to-day  the  government  is  dis- 
charging its  debts  and  paying  its  officials,  its  sol- 


COINED  MONEY  137 

diers,  its  pensioners,  its  clerks,  and  its  laborers,  in 
standard  dollar  coins  (or  certificates  representing 
such  coins).  These  contain  each  a  quantity  of 
silver  that  has  cost  the  government  only  from 
T6t>5<F  to  i8/o  of  a  g^d  dollar.  As  long  as  the 
persons  who  receive  this  money  directly  from  the 
Treasury  can  pass  it  off  at  the  legal  appraisement, 
they  will  lose  nothing ;  nor  will  any  person  hand- 
ling these  coins  and  certificates  suffer  loss  as  long 
as  the  government  holds  their  money  force  up  to 
the  gold  standard ;  but  if  this  upholding  by  the 
government  should  cease,  and  if,  in  consequence 
of  the  loss  of  that  support,  the  money  force  of  the 
standard  silver  dollar  should  drop  to  its  intrinsic 
value  only,  it  is  absolutely  certain  that  every  such 
dollar  will  immediately  lose  35  cents  of  purchas- 
ing force,  making  a  loss  of  35  per  cent,  on  the 
whole  silver  dollar  coinage.  This  loss  will  fall 
primarily  upon  those  who  happen  at  that  time  to 
have  the  coins  in  their  possession,  and  the  govern- 
ment will  be  justly  chargeable  with  the  loss. 

Unless  the  government  maintains  these  coins  at 
the  value  at  which  they  have  been  paid  out  at  the 
Treasury,  it  will  be  guilty  of  dishonesty,  for  the 
standard  silver  dollars  have  been  coined  out  of 
bullion  costing  the  government  much  less  than  the 
face  value  of  the  coins,  while  the  government  real- 
ized their  full  face  value  when  they  were  paid  out 
for  wages,  salaries,  and  pensions,  or  in  settlement 
for  other  full  gold  value  received  by  the  govern- 
ment. 


138  THE  PEOPLE'S  MONEY 

The  government,  therefore,  has  no  right  to  with- 
draw from  these  coins  the  sustaining  force  of  its 
credit ;  it  is  bound  to  the  people  at  large  to  re- 
deem every  standard  dollar  with  25T8^  grains  of 
gold,  just  as  it  is  bound  to  redeem  the  greenbacks 
in  that  way.  It  would  no  more  be  justified  in 
leaving  the  holders  of  the  standard  dollars  with 
only  the  bullion  value  of  412  J  grains  of  silver  to 
show  for  the  honest  dollar's  worth  of  labor,  or 
other  value  given  in  exchange  for  that  dollar,  than 
it  would  be  if  it  left  the  holders  of  the  greenbacks 
to  realize  what  they  could  out  of  the  paper  and 
ink  that  constitutes  their  material.  The  explicit 
promise  to  pay  the  greenbacks  in  coin  is  not  more 
binding  upon  the  government  than  is  the  moral 
obligation  to  redeem  the  standard  silver  dollars  in 
gold  if  gold  should  come  to  be  the  only  money 
fully  up  to  that  "  unit  of  value  "  which  was  estab- 
lished by  the  general  coinage  law.* 

Another  result  of  the  silver  coins  dropping  to 
their  bullion  value  will  be  that  all  buying  and 
selling  will  be  done  on  the  basis  of  the  standard 
silver  dollars,  and  the  gold  coins  will  cease  to  be 
money  and  become  merchandise  only.  As  it  is 
computed  that  the  gold  coins  now  in  this  country 
amount  in  the  aggregate  to  $650,000,000,  their 

*If  any  unavoidable  circumstance  should  cause  the  standard 
silver  dollars  to  decline  in  current  value,  i.e.,  in  money  force,  to 
their  bullion  value,  that  is,  to  lose  thirty-five  per  cent,  of  their 
purchasing  power,  the  government  would  be  bound  in  good  faith 
to  restore  them  to  full  value  by  redeeming  them  in  gold  as  soon 
as  practicable. 


COINED  MONEY  139 

demonetization  will  contract  our  total  supply  of 
money  by  just  that  amount.  The  consequences  of 
such  a  contraction  must  be  disastrous  to  all,  but 
this  is  not  the  place  to  discuss  them. 

The  only  way  in  which  the  government  can 
maintain  its  silver  and  gold  coins  at  a  parity  of 
purchasing  force  is  by  such  administrative  meas- 
ures as  will  enable  anyone  at  any  time  to  exchange 
gold  for  silver  or  silver  for  gold.  If  provision  for 
this  is  made,  and  if  the  resources  of  the  govern- 
ment are  believed  by  the  public  to  be  sufficient 
for  the  purpose,  no  one  will  discriminate  between 
the  two  metals  in  his  private  transactions,  and 
the  equilibrium  of  their  purchasing  force  will 
not  be  disturbed.  In  this  case  the  principles  ex- 
plained in  the  Chapter  on  Confidence  as  a  Basis 
of  Money  (Chapter  VII.),  again  assert  themselves. 
The  government  must  be  able  to  protect  the  coins 
of  the  cheaper  metal  against  a  lapse  to  their  bull- 
ion value,  it  must  take  adequate  measures  to  do 
so,  and  above  all,  the  people  must  believe  that  the 
government  is  both  able  and  resolved  to  maintain 
the  coinages  in  equilibrium. 

Upon  this  view  it  is  obvious  that  the  public  con- 
fidence in  the  purposes  of  the  government  will  not 
alone  suffice.  Confidence  in  its  ability  must  also 
pervade  the  people.  Now,  confidence  in  the  ability 
of  the  government  to  accomplish  this  purpose  will 
be  strengthened  or  weakened  according  to  the  es- 
timate formed  by  the  public  of  the  strain  to  which 
the  government's  gold  resources  are  subjected,  as 


140  THE  PEOPLE'S  MONEY 

compared  with  the  volume  and  availability  of  those 
resources.  Manifestly,  if  the  mass  of  silver  dollars 
and  of  coin  notes  based  on  silver  bullion  continues 
to  increase,  without  corresponding  additions  to  the 
stock  of  gold  in  the  Treasury,  the  public  will  grow 
more  and  more  apprehensive,  and  there  must  inev- 
itably come  a  time  when  some  will  lose  confidence 
and  begin  to  hoard  gold.  If  these  hoarders  should 
become  numerous  there  would  soon  be  a  run  on 
the  Treasury  for  gold,  while  its  receipts  would  be 
almost  exclusively  in  silver. 

Then  would  come  the  test.  If  all  demands  on 
the  Treasury  for  gold  should  be  met,  and  no  ob- 
jection be  made  to  receiving  silver,  confidence  may 
be  restored,  but  any  wavering  on  either  point 
would  end  the  struggle.  Gold  would  cease  to  be 
money  in  the  United  States,  and  our  great  repub- 
lic would  be  debased  to  the  monetary  level  of 
Asia,  Africa,  and  South  and  Central  America.  No 
one  can  tell  in  advance  when  confidence  is  going 
to  be  shaken ;  no  one  foresaw  the  panics  of  1873, 
1884,  and  1890 ;  but  all  men  of  business  experience 
know  that  the  Treasury  is  already  heavily  weighted 
and  that  just  now  nothing  can  be  safer  than  to 
stop  the  silver  purchases. 


CHAPTEE  XHI. 

PAPER  MONEY 

From  what  precedes  it  is  apparent  that  to  the 
people  of  an  industrial  community  it  is  essential 
that  all  their  money  should  be  of  such  material, 
and  so  rooted  in  natural  laws,  as  to  merit  and  to 
obtain  universal  confidence,  both  as  a  medium  of 
exchange  and  as  a  measure  of  value.  For  this 
reason  many  economists  insist  that  the  law  should 
recognize  nothing  as  money  but  coins  of  gold,  sil- 
ver, or  copper,  because  these  alone  possess  intrin- 
sically, and  in  the  highest  degree,  the  qualities 
which  experience  has  shown  to  be  characteristic 
of  good  money.  It  is  to  be  considered,  however, 
that  a  great  volume  of  circulation,  consisting  ex- 
clusively of  these  metals,  is  a  very  costly  appli- 
ance, and  though  the  cost  of  carrying  it  may  be 
widely  distributed,  still  it  cannot  be  escaped,  and 
must  be  very  sensibly  felt  as  a  burden  upon  all 
the  industries  of  the  country. 

In  order  to  appreciate  the  force  of  this  objection 
to  an  exclusively  metallic  circulation,  we  need, 
first  of  all,  to  fully  realize  that  every  dollar  of 


142  THE  PEOPLE'S  MONEY 

money  actually  present  in  any  community  belongs 
to  some  individual  or  institution,  and  that  every 
such  dollar  is  inert  capital,  void  of  increase  and 
earning  nothing.  Whether  carried  in  the  pocket 
or  locked  in  a  safe,  every  coin  and  every  note  costs 
to  its  possessor,  day  by  day,  the  loss  of  whatever 
interest  or  profit  he  might  obtain  by  parting  with 
it,  through  investing  its  value  in  some  produc- 
tive form,  i.e.,  in  a  savings  bank  deposit  or  in 
bonds,  stocks,  promissory  notes,  real  estate,  ma- 
chinery, tools,  animals,  etc.  All  these  and  many 
other  forms  of  property  yield  to  their  possessor 
either  profit  or  pleasure  without  diminution  of 
their  value  as  property ;  but  money  yields  nothing 
while  it  is  kept.  To  derive  pleasure  or  profit  from 
money  one  must  part  with  it. 

While  it  is  true  that  money  is  a  burden  to  those 
who  keep  it,  still,  since  everybody  requires  to  use 
money  at  some  time  or  another  and  many  have 
to  use  it  continually,  there  is  always  a  great  deal 
of  money  necessarily  kept  awaiting  use ;  but  ev- 
ery person  so  keeping  it,  and  every  bank  or  other 
institution  keeping  money  on  hand,  bears  a  pro- 
portionate share  of  the  burden  of  its  idleness. 
That  this  is  felt  to  be  a  burden,  is  manifest  by 
the  actions  of  individuals  and  banks  respecting 
it.  Every  person  who  has  money  paid  to  him 
in  an  amount  greater  than  he  has  immediate 
need  to  keep  in  hand,  goes  about  to  rid  him- 
self of  the  surplus  by  depositing  it  in  a  bank,  or 
by  buying  something,  or  by  lending  to  his  neigh- 


PAPEK  MONEY  143 

bor,  in  one  form  or  another.  Merchants,  traders, 
and  manufacturers  keep  as  little  cash  on  hand  as 
possible,  even  though  they  possess  large  capital ; 
while  the  great  operators  in  exchange,  securities 
and  produce  habitually  draw  their  bank  balances 
down  to  the  lowest  point  they  consider  consist- 
ent with  safety  to  their  business,  and  if,  at  the 
end  of  any  day's  operations,  one  of  these  finds 
his  balance  larger  than  necessary,  he  will  try  to 
lend  out  the  excess,  even  at  a  very  low  rate  of 
interest. 

So  great  is  the  burden  of  idle  money  that  in 
many  kinds  of  business  needing  the  use  of  money 
for  short  periods  of  time  only,  it  is  found  more 
economical  to  borrow  for  such  periods  than  to 
hold  so  much  money  over  the  intervening  spaces 
of  time ;  thus,  builders  are  always  large  borrow- 
ers, farmers  invariably  get  advances  on  a  matur- 
ing crop ;  while  factors,  warehousemen,  and  others 
engaged  in  marketing  agricultural  products  would 
have  their  commissions  and  profits  consumed  in 
loss  of  interest  if  they  should  undertake  to  keep 
idle  all  through  the  late  spring  and  the  summer 
the  money  they  know  they  must  pay  out  during 
the  autumn  and  winter.  The  uniformity  of  prac- 
tice in  this  respect  among  business  men  is  incon- 
testable evidence  that  it  is  to  the  material  interest 
of  each  individual  to  act  in  that  way ;  and  since 
communities  consist  wholly  of  individuals,  the 
same  rule  of  conduct  must  be  regarded  as  also 
advantageous,  to  the  community ;  hence  it  is  evi- 


THE  PEOPLE'S  MONEY 

dent  that  no  community  willingly  or  knowingly 
burdens  itself  with  more  money  than  it  needs. 

Poor  communities,  like  men  of  small  means, 
cannot  afford  to  keep  even  the  least  amount  they 
are  constantly  having  need  for,  hence  they  depend 
upon  borrowing,  and  it  is  common,  within  limited 
circles,  to  economize  the  use  of  money  as  much  as 
possible  by  direct  exchange  of  services  and  prod- 
ucts, one  with  another.  The  same  thing  occurs 
in  communities  that  are  not  poor,  but  where 
neighbors  know  each  other  and  have  confidence 
one  in  another,  as  is  seen  in  farming  localities  and 
in  some  old  towns  and  villages.  It  is  generally 
said  in  such  cases  that  money  is  scarce,  but  it  is 
not  generally  understood  that  the  scarcity  is  due 
to  economy,  not  to  poverty.  Currency  is  scarce 
in  such  communities  for  the  same  reason  that 
horses  are  scarce  in  Venice  and  wherever  else 
their  use  can  be  dispensed  with.  Idle  money  is 
as  expensive  as  an  idle  horse. 

A  community  that  produces  neither  gold  nor 
silver  can  obtain  these  only  by  importation,  in 
exchange  for  the  products  of  its  labor,  and  to 
whatever  extent  they  are  imported,  to  the  same 
extent  must  there  be  a  reduction  in  the  importa- 
tions of  food,  clothing,  raw  material,  and  other 
commodities  that  can  be  industrially  utilized  and 
so  made  a  source  of  future  profit.  Even  in  places 
where  the  mining  of  the  precious  metals  is  the 
chief  occupation  of  the  population,  no  more  of 
the  product  of  the  mines  is  retained  than  barely 


PAPER  MONEY  145 

suffices  for  the  local  circulation,  it  being  neces- 
sary for  the  maintenance  of  the  community  to  ex- 
change the  greater  part  for  articles  available  for 
its  sustenance  and  comfort. 

Having  fully  realized  that  the  entire  volume  of 
circulation  in  any  community  is  a  burden  upon  its 
industries,  it  is  next  in  order  to  inquire  how  that 
burden  may  be  lightened,  and  the  answer  will  be 
found  to  be,  first,  by  abstaining  from  legislation 
tending  to  enlarge  the  circulation  beyond  actual 
needs ;  and,  secondly,  by  using  paper  money  to  a 
greater  or  less  extent.  The  first  point  will  be 
treated  in  the  chapter  entitled  Volume  of  Circula- 
tion ;  the  second  is  to  be  now  established. 

Of  course  the  burden  of  idle  money  is  the  same 
whether  such  money  be  of  metal  or  paper,  but  a 
part  of  the  cost  of  "  carrying "  paper  money  is 
offset  by  the  profit  upon  its  issue,  while  there  is 
no  such  offset  in  the  case  of  coins.  Banks  issue 
their  own  notes  in  exchange  for  interest-bearing 
obligations  of  some  character,  and  as  long  as 
those  notes  remain  "  out "  the  bank  has  the  use 
of  that  capital  free  of  cost.  The  profit  from  such 
use  coming  to  the  bank  is  (taking  the  bank  and 
the  rest  of  the  community  as  one  whole)  an  offset 
to  the  loss  of  profit  upon  the  same  amount  of  cap- 
ital which  has  been  sustained  by  the  members  of 
the  community  who  have,  for  the  same  period  of 
time,  been  successively  holding  the  notes.  The 
first  cost  of  the  notes  to  the  bank  which  issues 
them  is  small ;  but  if  the  bank  had  no  power  to 
10 


146  THE  PEOPLE'S  MONEY 

issue  notes,  and  was  compelled,  before  it  could 
discount  paper,  to  buy  bullion  and  get  it  coined, 
the  cost  of  the  bullion  would  be  only  a  fraction 
less  than  the  money  produced  by  its  mintage. 
The  saving  to  the  community,  therefore,  from  the 
use  of  paper  money  is  about  equal  to  the  annual 
interest  on  the  volume  of  such  money  less  the  ex- 
pense of  its  issue,  redemption,  and  maintenance 
in  a  clean  condition.  This  saving  is  less  upon 
government  issues  of  currency  than  upon  bank 
notes,  because,  the  expenses  being  the  same  in 
both  cases,  the  gross  saving  on  government  paper 
money  is  merely  the  interest  upon  an  equal 
amount  of  its  funded  debt,  while  the  saving  on 
bank  issues  is  the  interest  on  an  equal  amount  of 
commercial  debt,  and  the  rate  of  interest  on  gov- 
ernment debts  is  always  less  than  the  rate  charged 
for  bank  loans. 

Owing  to  the  considerations  here  noted,  and  to 
others  which  will  be  hereafter  referred  to,  paper 
money  has  come  largely  into  use  in  modern  times ; 
and  wherever  the  conditions  of  industry,  credit, 
law,  and  social  life  are  such  as  to  admit  of  the  gen- 
eral circulation  of  paper  money  its  use  has  been 
found  to  be  both  economical  and  convenient.  The 
employment  of  paper  money  had  its  origin  in  the 
use  of  bills  of  exchange,  which  are  paper  orders 
for  money  issued  for  money  deposited  at  one 
place  and  redeemable  at  another  place  in  money 
of  equivalent  value ;  a  device  which  naturally  sug- 
gested a  similar  device,  enabling  merchants  to 


PAPEE  MONEY  147 

deposit  money  at  one  time  and  draw  it  out  at 
another.  Manifestly  a  bill  of  exchange  would  be 
a  bank-note  if  it  were  made  redeemable  at  the 
place  of  its  issue. 

Bank-notes  came  into  use  in  Italy  during  the 
twelfth  century,  and  their  use  afterward  followed 
the  development  of  trade  in  the  several  countries 
of  modern  Europe.*  Like  the  use  of  bills  of  ex- 
change, the  circulation  of  bank-notes  rests  en- 
tirely upon  the  credit  enjoyed  by  the  issuing 
banks ;  but  this  fundamental  principle  was  for 
centuries  either  unperceived  or  disregarded  by 
certain  governments,  which,  observing  the  favor 
enjoyed  by  bank-notes,  conceived  the  idea  of  aug- 
menting their  resources  by  issues  of  paper  money 
with  no  basis  but  the  force  of  the  royal  mandate. 
This  force  was  at  first  applied  to  existing  bank 
currencies,  and  variously.  In  some  cases  the  gov- 
ernment took  forcibly  from  the  bank  the  treasure 
held  against  its  note  issues,  in  other  cases  the 
government  borrowed  the  treasure ;  but  in  both 
cases  the  institutions  were  released  from  obligation 
to  redeem  the  notes,  and,  in  extreme  instances, 
laws  were  made  forbidding  any  subject  to  re- 
fuse the  notes  in  payment  for  debts,  property, 
produce  or  labor.  Sometimes  loans  to  the  gov- 
ernment were  made  by  additional  issues  of  notes, 
without  adding  to  the  treasure  behind  them  (this 
would  now  be  called  watering  the  circulation), 
and  sometimes  the  government  debt  to  the  bank 
*  See  American  Encyclopaedia,  vol.  vii.,  p.  363. 


148  THE  PEOPLE'S  MONEY 

constituted  the  original  and  sole  basis  of  the  note 
issues.  In  course  of  time  governments  came  to 
issue  paper  money  directly  (dispensing  with  banks), 
and  such  issues  have  been  conspicuous  among  the 
factors  deciding  momentous  crises  in  history. 

From  this  sketch  it  appears  that  paper  money  is 
of  two  kinds :  that  issued  by  banks  and  that  issued 
by  governments,  and  further  examination  will  show 
that  each  of  these  two  kinds  may  be  classified  into 
convertible  and  inconvertible.  Convertible  paper 
money  is  that  which  is  maintained  at  a  parity  of 
value  with  metallic  money,  by  means  of  arrange- 
ments giving  to  the  public  the  right  and  the 
means  to  convert  the  notes,  at  will,  into  equiva- 
lent amounts  in  coin.  Inconvertible  paper  money 
is  that  in  respect  to  which  no  such  arrangements 
exist.  Three  conditions  are  essential  to  maintain- 
ing the  convertibility  of  paper  money,  viz. : 

1.  The  existence  of  a  monetary  unit,  established 
by  law,  or  so  rooted  in  the  traditions  and  habits  of 
the  people  as  to  be  practically  beyond  chance  of 
variation. 

2.  Adequate  provision  for  securing  the  conver- 
sion of  notes  into  coin  without  unreasonable  ex- 
pense or  delay,  and  in  any  amount  likely  to  be 
demanded. 

3.  General  confidence  among  the  people  in  the 
permanency  and  sufficiency  of  the  two  preceding 
conditions. 

Inconvertible  paper  money  may  be  maintained 
in  circulation  by  a  government,  but  under  present 


PAPER  MONEY  149 

conditions  of  corporate  credit  it  does  not  seem 
possible  for  any  bank  to  maintain  such  a  circula- 
tion. The  Bank  of  Venice,  in  the  twelfth  century, 
and  the  Bank  of  Amsterdam,  in  the  seventeenth, 
were  able  to  obtain  deposits  not  subject  to  with- 
drawal, and  they  long  maintained  this  rule,  but 
both  abandoned  it  in  time.  While  the  rule  lasted 
the  ownership  of  such  deposits  was  transferred 
from  one  person  to  another  by  means  of  checks 
or  orders  vouched  or  certified  by  the  bank ;  and 
this  presents  the  nearest  approach  to  an  incon- 
vertible bank  currency  that  history  records.  It 
evidences  either  extraordinary  depression  of  gen- 
eral credit  or  great  social  and  political  disorder. 
There  have  been  many  instances  in  which  bank- 
notes have  been  maintained  in  circulation  during 
periods  of  suspension,  but  such  currencies  have  not 
been  voluntarily  adopted  by  the  people ;  and  in 
most  cases  of  suspended  banks  the  government  has 
bolstered  their  circulation  by  receiving  the  notes 
in  the  payment  of  taxes  and  other  public  dues. 

Inconvertible  paper  money,  issued  by  a  govern- 
ment, may  be  maintained  at  a  parity  of  value  with 
metallic  money,  provided  the  following  condi- 
tions, five  in  number,  exist : 

1.  There  must  be  a  monetary  unit,  as  in  the  case 
of  convertible  paper  money. 

2.  There  must  be  a  considerable  volume  of  me- 
tallic money  in  the  country,  and  sufficient  foreign 
trade,  or  other  specific  use  for  coins  to  keep  them 
in  general  circulation. 


150  THE  PEOPLE'S  MONEY 

3.  The  government  must  make  no  distinction, 
in  its  dealings  with  the  people,  between  the  two 
kinds  of  money ;  both  or  either  must  be  received 
and    paid  out    with  at  least  ostensible  imparti- 
ality. 

4.  Provision  must  be  made  by  taxation,  or  by 
voluntary  funding  for  the  prompt  absorption  of 
any  redundancy  apparent  in  the  volume  of  out- 
standing paper  money. 

5.  The    people  using  the  paper    money  must 
have  confidence  in  the  purpose  and  the  ability  of 
the  government  to  maintain  indefinitely  the  four 
preceding  conditions. 

Both  convertible  and  inconvertible  paper  money 
become  depreciated  the  moment  public  confidence 
is  shaken  in  the  purpose  or  power  of  the  issuer  to 
preserve  the  conditions  under  which  alone  such 
money  can  circulate  in  interchangeable  effective- 
ness with  coins.  Under  Gresham's  law  the  primary 
effect  of  the  depreciation  is  to  cause  contraction 
of  the  total  volume  of  circulating  medium,  by 
expelling  from  it  all  money  that  is  not  depreci- 
ated. What  is  left  thus  becomes  a  sort  of  lep- 
rous currency,  with  which  association  and  min- 
gling is  abhorrent  to  all  forms  of  sound  and 
healthy  money. 

A  community  abandoned  to  a  depreciated  cur- 
rency suffers  incalculable  loss,  both  materially 
and  morally,  proofs  of  which  are  afforded  by  gen- 
eral history,  but  they  abound  in  the  annals  of  our 
own  country  where  both  before  and  just  after  the 


PAPER  MONEY  151 

Eevolution  almost  every  Colony  and  State  tried 
the  experiment  of  paper  money  and  suffered  from 
its  depreciation.  The  people  of  the  late  Confed- 
erate States  suffered  enormously.  Against  the 
economy  and  convenience  of  paper  money,  there- 
fore, we  must  set  its  liability  to  depreciation,  and 
before  any  satisfactory  conclusion  can  be  reached 
we  must  consider  separately  the  two  kinds  of 
paper  money,  viz.,  that  issued  by  the  government 
and  that  issued  by  the  banks — endeavoring  to 
ascertain  on  the  one  hand  their  relative  cheapness 
and  convenience,  and  on  the  other  their  relative 
liability  to  depreciation.  These  questions  are 
treated  in  the  two  succeeding  chapters. 


CHAPTEE  XIV. 

TREASURY-NOTE  OR  DUE-BILL  CIRCULATION 

The  power  to  prescribe  what  shall  be  legal 
tender  for  debt  must  not  be  confounded  with  the 
natural  right  possessed  by  every  sovereign  govern- 
ment to  determine  what  shall  be  the  medium  for 
paying  public  dues.  That  right  flows  from  the 
right  of  taxation,  and  were  the  States  of  the  Union 
not  prohibited  by  the  Federal  Constitution  from 
issuing  bills  of  credit,  there  would  be  no  force  in 
the  legal  tender  inhibition  to  restrain  them  from 
maintaining  a  State  currency  receivable  for  State 
dues.* 

*  The  United  States  Supreme  Court  has  lately  decided  anew 
that  the  matured  coupons  of  State  bonds  are  a  valid  tender  for 
dues  to  that  State,  hence  there  can  be  no  doubt  that  a  State  has 
a  natural  right  to  issue  obligations  of  its  own,  and  to  give  them 
currency,  by  engaging  to  receive  them  in  payment  of  taxes  and 
other  dues. 

So  may  a  large  property  owner  or  capitalist  maintain  a  circula- 
tion of  his  own  due-bills,  by  making  them  good  for  the  payment 
of  rent  and  other  dues  to  him. 

In  the  Constitution,  however,  the  States  have  surrendered  this 
natural  right,  as  far  as  bills  of  credit  go,  and  therefore,  as  in  the 
case  of  legal  tender,  the  Federal  government  alone  may  exercise  it 
as  the  common  agent  and  organ  of  all  the  States  for  these  functions. 


TKEASURY-NOTE  CIRCULATION  153 

The  principle  upon  which  an  irredeemable  due- 
bill  currency  rests,  is  worthy  of  careful  observa- 
tion, because  it  is  one  of  the  fundamental  principles 
underlying  all  monetary  circulation  except  that  of 
the  precious  metals.  It  is  well  illustrated  by  the 
circulation  of  blood  in  the  human  body,  of  which 
Harvey's  celebrated  exposition  may  be  abbreviated 
as  follows : 

The  muscular  force  of  the  heart  keeps  pumping" 
the  blood  in  a  continuous,  bright  red  stream 
through  the  arteries,  which,  at  first  great  ducts, 
diminish  in  diameter  and  divide  into  smaller  pipes 
as  they  extend  toward  the  surfaces  they  are  to 
nourish;  upon  these  surfaces  the  attenuated  ar- 
teries are  spread  out,  a  tangle  of  innumerable  hair- 
like  tubes,  where  at  length  the  propelling  force  of 
the  heart  is  spent,  and  where,  changed  in  color 
from  scarlet  to  purple,  the  fluid  moves  languidly 
to  its  myriad  points  of  ultimate  circulation.  From 
each  of  these  points  the  blood  is  sent  back  to- 
ward the  source  of  its  emission  by  pulsating 
movements  in  the  veins,  which,  beginning  at  the 
capillaries,  urge  it  with  increasing  energy  through 
conduits  continually  enlarging  in  diameter  as 
they  diminish  in  number,  until  it  is  poured  into 
the  heart  a  single  torrent,  black  with  the  impu- 
rities of  the  system.  Thence  the  stream  runs 
through  the  lungs,  where  it  is  filtered  and  cleansed 
and  returning  to  the  heart  is  sent  forth  again  on  its 
ceaseless  round,  the  volume  and  the  essential  com- 
position of  the  fluid  remaining  always  the  same. 


154:  THE  PEOPLE'S   MONEY 

A  due-bill  or  Treasury -note  circulation  may  be- 
come, like  the  blood,  an  ever-flowing  stream,  and 
it  may  be  maintained  undepreciated,  even  though 
the  notes  are  irredeemable,  and,  therefore,  never 
convertible  into  coin,  provided  the  Treasury,  like 
the  heart,  draws  back  from  the  channels  of  circu- 
lation all  that  it  puts  out.  When  the  energy  of 
the  public  expenditure  is  sending  forth  an  inces- 
sant stream  of  paper  money,  the  force  of  taxation 
should  be  sufficient  to  draw  it  all  back  into  the 
Treasury  after  it  has  made  the  circuit  of  society, 
for  otherwise  the  channels  of  circulation  will  be- 
come gorged,  and  stagnant  currency  is  as  fatal  to 
health  in  a  monetary  system  as  a  languid  circula- 
tion of  the  blood  is  to  the  animal  organism. 

Let  us  follow  the  note  circulation  under  such  a 
system.  The  officers  and  employees  of  the  govern- 
ment, the  soldiers,  the  contractors  for  public  sup- 
plies, the  mail  carriers,  the  artisans  and  laborers 
on  public  works,  with  many  others,  receive  the 
fresh  issues  as  they  come  crisp  from  the  Treasury. 
All  these  persons  use  the  notes  to  pay  the  gro- 
cer, the  butcher,  and  other  tradespeople;  some 
part  goes  in  servants'  wages,  some  in  travel  and 
amusement ;  in  one  way  or  another  the  notes  pen- 
etrate every  nook  and  cranny  in  the  community. 
From  these  innumerable  points,  which  may  be 
called  the  capillaries  of  money  circulation,  where 
money  passes  from  hand  to  hand,  the  notes  enter 
the  channels  of  trade ;  they  are  deposited  in  bank 
one  day,  drawn  out  another,  shipped  from  city  to 


TREASURY-NOTE  CIRCULATION  155 

country,  and  back  from  country  to  city,  until  at 
length  the  tax-collector  gathers  them  in  and  sends 
them  back  to  the  Treasury,  soiled  with  the  dust  of 
traffic,  the  grime  of  toil,  and,  perhaps,  even  the 
stain  of  vice.  From  the  moment  of  issue  to  that 
of  return  to  the  Treasury,  every  note  passes  from 
hand  to  hand,  from  bank  to  bank,  from  place  to 
place,  entirely  because  of  its  tax-paying  force- 
just  as  every  globule  of  blood  is  kept  in  motion  by 
the  force  that  tends  always  to  hurry  back  to  the 
heart  those  globules  that  have  severally  reached 
and  passed  the  points  of  their  ultimate  circulation. 
Such  circulation  may  be  maintained  upon  two  con- 
ditions :  First,  that  taxation  shall  always  keep  pace 
with  expenditure,  so  as  to  insure  that  every  dol- 
lar that  is  put  out  will  be  ultimately  demanded 
back  in  payment  of  taxes ;  and,  secondly,  that  the 
stability  of  the  government  is  sufficiently  estab- 
lished to  exclude  all  doubt  as  to  its  power  to  en- 
force the  return  of  the  currency  by  means  of  taxa- 
tion. 

These  conditions  are  essential,  because  a  cur- 
rency sustained  solely  in  this  way  owes  its  effi- 
ciency entirely  to  the  demand  for  it  created  by  the 
tax.  Take  that  away  and  it  will  pass  through  a 
rapid  process  of  depreciation  or  into  utter  discredit 
and  worthlessness ;  revive  its  receivability  for 
taxes,  and  you  revive  its  value  and  restore  it  to 
circulation.  The  repeal  of  the  law  and  the  over- 
throw of  the  government  equally  destroy  such  a 
currency.  A  due-bill  system,  as  here  described,  is 


156  THE  PEOPLE'S  MONEY 

virtually  a  method  of  borrowing  by  the  government 
from  the  people,  upon  the  security  of  the  proceeds 
of  future  taxation,  and  without  paying  interest. 
The  lenders  are  the  employees  of  the  government, 
its  soldiers  and  sailors,  the  laborers  it  employs, 
the  contractors  and  dealers  from  whom  it  pur- 
chases supplies ;  they  lend  the  value  of  their  ser- 
vices or  their  property,  and  the  government  due 
bills  are  their  receipts.  From  these  primary  cred- 
itors the  government  I.  O.  U.'s  pass  to  its  only 
debtors,  the  tax-payers,  who  settle  their  taxes  with 
the  government  by  passing  the  paper  back  into 
the  Treasury. 

It  is  manifest  that  a  government  sustained 
through  the  instrumentality  of  an  irredeemable 
currency  is  anticipating  its  revenues,  and  that  it 
forces  the  most  defenceless  class  of  its  citizens  to 
lend  it  the  means  to  do  so.  Here  is  another  proof 
that  it  is  money's  worth  and  not  money  that  is 
really  the  object  of  universal  pursuit,  for  the  gov- 
ernment gets  money's  worth  in  labor,  services,  ma- 
terials, and  supplies,  gives  a  receipt  for  them  in 
the  form  of  currency,  and  exacts  from  its  tax- 
payers the  redemption  and  return  of  these  re- 
ceipts. No  device  combines  within  itself  so  many 
of  the  essential  ingredients  of  tyranny  as  a  due-bill 
circulation,  redeemable  only  in  commutation  for 
taxes ;  for  while  it  represents  the  extreme  of  arbi- 
trary exaction  by  the  government,  it  fastens  upon 
the  mass  of  the  people  a  yoke  from  which  they 
cannot  escape,  except  by  themselves  destroying 


TREASURY-NOTE  CIRCULATION  157 

the  value  of  the  paper  upon  which  they  have  ad- 
vanced full  value  by  giving  their  services,  their 
products,  and  their  property  in  exchange  for  it. 
By  submitting  to  the  issue  of  such  a  currency  the 
subjects  of  a  monarchy  abandon  their  only  effec- 
tive defence  against  oppression,  and  they  aggra- 
vate enormously  the  cost  of  revolution,  while  the 
citizens  of  a  free  state  who  allow  such  a  currency 
to  be  established  among  them,  invest  their  rulers 
with  a  power  dangerous  to  liberty  and  difficult  of 
restraint.  The  reason  is  the  same  in  both  cases  ; 
an  irredeemable  government  currency  binds  the 
people  indefinitely  to  a  scale  of  taxation  commen- 
surate with  the  volume  of  the  paper  issues,  and 
thereafter  taxation  can  be  reduced  only  by  con- 
tracting the  currency  or  by  suffering  it  to  become 
depreciated,  alternatives  of  which  both  are  op- 
pressive and  of  which  therefore  either  is  difficult 
of  adoption. 

A  due-bill  currency  may  or  may  not  be  made  a 
legal  tender  for  debt.  An  example  on  each  side  is 
afforded  by  our  own  recent  history.  The  currency 
issued  by  the  Confederate  government  was  not 
made  a  legal  tender ;  it  was  an  inconvertible  due- 
bill  or  Treasury -note  circulation.  Had  its  volume 
been  adjusted  to  the  receipts  from  taxes,  or  had 
taxation  been  raised  to  the  scale  of  the  currency 
issues,  an  artificial  circulation  could  have  been 
maintained  that  would  have  prevented  deprecia- 
tion up  to  the  time  when  the  Southern  people 
lost  faith  in  the  result  of  the  war,  i.e.,  when  the 


158  THE  PEOPLE'S  MONEY 

stability  of  the  government  was  seen  to  be  in  dan- 
ger. 

The  law-makers  at  Kichmond,  however,  failed 
to  understand  or  to  apply  this  principle.  They 
shrunk  from  levying  taxes  on  a  scale  commensu- 
rate with  the  needs  of  the  government,  and  conse- 
quently, through  the  instrumentality  of  a  baseless 
currency,  some  of  the  population  were  cozened, 
and  others  were  coerced  out  of  the  needed  sup- 
plies, while  many  escaped  contributions  altogeth- 
er. In  this  way  the  ultimate  cost  to  the  people 
was  vastly  greater  than  it  would  have  been  if 
the  value  realized  by  the  government  had  been 
taken  in  the  orderly  manner  in  which  taxes  are 
collected,  while  the  wrong  and  injustice  to  the  de- 
fenceless classes  were  immense  and  irremediable. 
To  the  destruction  of  war  there  were  thus  added 
the  sickening  miseries  of  a  depreciated  currency. 

If  there  are  in  the  world  to-day  any  people  who 
ought  to  appreciate  the  blessings  of  sound  money 
and  stable  values,  they  are  the  people  of  those 
States  of  the  Union  which  are  still  suffering,  after 
more  than  a  quarter  of  a  century,  from  the  effects 
of  a  currency  that  was  neither  sound  in  principle 
nor  stable  in  value.  The  direst  losses  of  the  war 
at  the  South  were  in  human  life  and  human  hap- 
piness, which,  though  irretrievable,  fell  only  on  the 
generations  fairly  subject  to  them.  The  entire 
people  suffered  greatly  also  in  material  comfort 
because  profitable  industry  everywhere  was  inter- 
rupted and  commerce  was  curtailed ;  serious  disas- 


TREASURY-NOTE  CIRCULATION  159 

ters,  but  such  as  a  country  of  varied  and  abound- 
ing resources  would  soon  have  recovered  from ; 
but  the  Confederate  currency  carried  impover- 
ishment and  demoralization  into  every  corner  of 
the  land ;  it  threw  upon  the  aged,  the  infirm,  the 
women,  and  even  upon  generations  then  unborn, 
the  vast  burden  of  the  war  expenditure,  and  what 
is  far  worse,  it  fostered  extravagance,  dishonesty, 
speculation,  and  gambling ;  it  sucked  up  the  ac- 
cumulated earnings  of  generations  of  honest  toil- 
ers and  transferred,  first,  their  securities,  and, 
sometimes,  ultimately,  their  lands  and  homesteads 
to  the  few  who  proved  astute  enough  both  to 
avoid  military  service  and  to  take  advantage  of 
the  general  confusion  and  distress,  to  their  own 
enrichment. 

The  Government  of  the  United  States,  in  1862, 
issued  an  irredeemable  paper  currency,  commonly 
called  greenbacks,  and  made  the  notes  a  legal 
tender  for  debts.  In  this  case,  as  in  that  of  the 
Confederate  currency,  taxation  was  not  adjusted 
to  the  volume  of  currency  emission,  consequently 
the  greenbacks  became  depreciated,  although 
throughout  the  North  commerce  and  manufact- 
ures were  enormously  stimulated  by  the  war ;  the 
country  suffered  little  or  nothing  from  invasion, 
and  immigration  was  constantly  bringing  in  re- 
sources from  outside.  One  incident  in  the  history 
of  the  greenbacks  is  highly  instructive,  as  show- 
ing, first,  that  the  effectiveness  of  money  depends 
upon  its  "  passing ;  "  and,  second,  that  its  ulti- 


160  THE  PEOPLE'S  MONEY 

mate  availability  in  trade  settlements  will  cause 
any  given  money  to  "pass"  everywhere  within 
the  area  covered  by  such  settlements. 

Of  course  the  first  issues  of  greenbacks  went  to 
pay  the  army  and  the  government  officers  and 
clerks,  and  for  a  time  they  sufficed  for  these  pur- 
poses ;  but  after  a  while  it  was  observed  that  the 
channels  of  circulation  within  which  the  new  cur- 
rency flowed  were  few  and  narrow,  and,  moreover, 
they  were  getting  filled  up.  The  banks  refused  to 
receive  the  notes  on  deposit  or  to  accept  them  in 
payment  of  maturing  paper,  and,  although  they 
were  a  legal  tender,  merchants  and  other  busi- 
ness men  having  paper  payable  in  bank  were 
restrained  by  conventional  opinion  from  tender- 
ing payment  in  greenbacks.  Some  persons  were 
prompted  by  this  and  other  financial  embarrass- 
ments in  which  the  government  became  involved 
to  propose  the  organization  of  national  banks,  and 
Mr.  Chase  incorporated  into  the  legislation  a  pro- 
vision requiring  the  national  banks  to  redeem 
their  own  notes  in  greenbacks. 

This  requirement  proved  to  be  effective  in  giv- 
ing currency  to  the  greenbacks,  for  of  course  the 
banks  eagerly  accepted  a  scheme  which  made  it 
a  patriotic  thing  for  them  to  put  out  a  great  cir- 
culation which  they  were  not  only  allowed  but 
almost,  one  may  say,  fantastically  compelled,  to 
redeem  in  a  medium  constantly  depreciating  in 
value,  while  they  had  their  own  means  invested 
in  government  bonds,  payable,  principal  and  in- 


TREASUKY-NOTE  CIKCULATION  161 

terest,  in  gold,  and  lest,  through  density  of  intel- 
lect, any  bank  officers  and  directors  should  be 
tempted  or  deluded  into  letting  go  such  a  good 
thing,  the  bonds  themselves  were  locked  in  the 
Treasury  at  Washington ! 

Yet  Mr.  Chase  is  entitled  to  credit  for  a  brilliant 
success  in  financiering,  for  the  government  was 
relieved,  the  banks  were  enriched,  and  everybody 
applauded.  Who  paid  ?  The  People — it  is  always 
The  People  who  pay.  They  paid  in  the  increased 
cost  of  the  war,  in  the  deplorable  moral  effect  of  a 
depreciated  currency,  in  all  the  chicanery  and  de- 
pravity flowing  from  the  gambling  in  gold  and 
stocks  that  prevailed  from  1862  to  1879,  in  the  cor- 
ruption that  ravened  and  exulted  at  every  seat  of 
government  from  Washington  to  the  smallest 
municipality,  in  the  long  and  exhausting  process 
preceding  the  resumption  of  specie  payments  in 
1879,  and  in  the  present  perilous  condition  of  the 
currency,  due  largely  to  the  fallacies  bred  among 
the  people  by  the  false  position  in  which  green- 
backs were  placed,  and  still  are  held,  by  legisla- 
tive force  alone — a  false  position,  made  all  the 
more  pernicious  in  its  influence  by  the  subsequent 
sanction  given  to  it  by  the  Supreme  Court  of  the 
United  States. 
11 


CHAPTEK    XV. 

BANK-NOTE  CIBCULATION 

In  the  chapter  on  Paper  Money  it  was  shown 
that  two  kinds  of  such  money  have  been  in  use  at 
various  times  and  places,  viz.,  government  cur- 
rency and  bank-notes.  We  have  considered  the 
subject  of  government  currency,  we  come  now  to 
that  of  bank-notes.  In  order  to  keep  our  ideas 
clear  on  this  subject  it  is  necessary  to  exclude 
from  consideration  here  currencies  which,  though 
issued  by  banks,  have  been,  as  it  were,  fathered 
by  the  government ;  but,  in  applying  this  exclu- 
sion, distinction  must  be  made  between  the  whole- 
some regulation  and  restraint,  which  all  govern- 
ments are  justified  in  imposing  by  law  upon  the 
issue  of  bank-notes  and  the  adoption  of  such  notes 
as  a  government  currency  in  return  for,  or  in  con- 
sideration of,  accommodation  or  advantages  sup- 
plied to  the  government  by  the  issuing  banks. 
The  excluded  currencies  are  of  a  mixed  character, 
partly  governmental  due -bills,  partly  bank-notes, 
and  they  will  receive  consideration  hereafter  in 
connection  with  the  present  National  Bank  circu- 


BANK-NOTE   CIRCULATION  163 

lation,  which  is  a  type  of  the  whole  class.  Our 
attention  now  should  be  confined  to  bank-note  cir- 
culation proper,  a  purely  commercial  device  called 
into  existence  by  industrial  and  social  convenience, 
and  maintained  wholly  through  the  uncoerced 
confidence  of  the  people  who  use  such  notes  as 
their  money. 

It  has  been  shown  (Chapter  XIII.)  that  bills  of 
exchange  were  the  first  paper  money,  and  that 
bank-notes  were  afterward  devised.  Checks  on 
banks  of  deposit,  so  familiar  to  us,  are  the  most 
recent  development  of  the  bill  of  exchange,  and 
when  "  certified  "  they  acquire  also  the  force  of  a 
bank-note.  Indeed,  these  certified  checks  are  very 
much  like  the  earliest  bank-notes,  which  were 
merely  certificates  of  deposit  invented  to  econo- 
mize the  use  of  the  precious  metals.  It  would 
be  quite  practicable  now  for  depositors  to  draw 
checks  in  round  sums  of  five,  ten,  etc.,  dollars, 
payable  to  bearer,  have  them  certified  by  a  bank, 
and  (unless  Section  3413,  United  States  Revised 
Statutes  should  be  construed  as  prohibiting  it)  use 
them  as  bank-notes.  Should  such  certified  checks 
obtain  general  currency  they  would  become  money 
in  the  community  where  so  circulating,  and  would 
differ  from  all  other  kinds  of  money  now  in  use 
in  this  country  in  being  simply  a  creation  of  credit, 
unsupported  by  governmental  provision,  and  de- 
pendent for  the  continuity  of  their  use  wholly  on 
their  acceptability  to  the  public. 

Such  certified  checks,  used  as  money,  would  be, 


164  THE  PEOPLE'S  MONEY 

for  all  practical  purposes,  like  the  bank-notes  that 
were  in  circulation  prior  to  1862,  and  the  sup- 
posed process  of  their  issue  illustrates  how  those 
bank-notes  were  issued.  During  the  older  period 
the  banks  that  issued  notes  placed  them  in  circu- 
lation by  paying  them  out  upon  the  checks  of 
their  depositors,  while  under  the  system  above 
imagined  the  checks  themselves  would  be  certi- 
fied. This  illustration  of  the  certified  check  is  in- 
tended only  to  make  quite  plain  the  true  nature 
of  the  bank-note  by  showing  that  such  checks, 
should  they  be  used  for  money,  would  serve  all 
the  purposes  of  bank-notes. 

The  main  advantage  to  be  derived  by  any  com- 
munity from  banks  of  issue  consists,  first,  in  the 
economy  of  paper  as  compared  with  metallic  money; 
and,  secondly,  in  the  utility  of  such  banks  to  pro- 
ductive industry.  The  plea  of  economy  for  the  use 
of  paper  money,  rather  than  coin,  applies  to  gov- 
ernment issues  as  well  as  bank-notes,  the  only  dif- 
ference being  in  the  relative  saving  effected,  and 
this  difference  has  been  shown  to  be  in  favor  of  the 
bank-note.  It  should  be  observed,  too,  that  it  is 
fallacious  to  claim,  as  some  do,  that  a  government 
currency,  though  the  less  economical  of  the  two, 
is  better  for  the  people  at  large,  inasmuch  as  the 
saving  effected  in  the  interest  disbursements  of 
the  government  tends  to  the  benefit  of  all  the 
people,  while  the  profit  derived  from  the  issue  of 
notes  goes  to  the  bank  and  its  stockholders.  It 
may  be  true  that  the  use  of  a  government  currency 


BANK-NOTE  CIKCULATION  165 

tends  to  lower  the  rate  of  interest  on  government 
bonds,  but  the  share  of  any  one  citizen  in  a  frac- 
tional saving  of  interest  by  the  government  is  so 
infinitesimal  as  to  be  practically  worthless,  while, 
on  the  other  hand,  it  is  certainly  true  that  the 
increase  of  bank-note  issues  tends  to  reduce  the 
rate  of  interest  on  commercial  loans,  and  the  re- 
duction of  one  or  two  per  cent,  per  annum  in  the 
rate  of  interest  on  the  loans  made  by  banks  to 
their  customers  is  a  matter  of  immense  conse- 
quence to  all  borrowers,  and,  consequently,  of 
such  great  advantage  to  all  industries  as  to  be 
incalculably  more  beneficial  to  the  masses  than 
any  saving  in  interest  by  the  government.  It 
especially  relieves  those  classes  of  the  community 
most  burdened  by  the  cost  of  carrying  its  stock  of 
money. 

In  the  United  States,  where  the  government 
taxation  is  not  in  the  least  degree  affected  by 
the  interest  on  the  public  debt,  the  people  gain 
absolutely  nothing  from  the  greenback  currency, 
amounting  to  $346,000,000  ;  while  the  issue  of  bank- 
notes to  that  amount  based,  not  on  bonds  but  on 
commercial  paper,  would  probably  make  seven  per 
cent,  a  maximum  rate  of  interest  throughout  all 
our  agricultural  communities,  except  those  in  the 
newest  States  and  the  Territories,  and  would  even 
there  greatly  reduce  present  rates  for  money. 
Under  the  imperfect  and  often  hazardous  system 
of  note  issues  by  State  banks  between  1820  and 
1860,  the  prevailing  rates  during  that  period  in  the 


166  THE  PEOPLE'S  MONEY 

communities  where  those  banks  were  located  were 
six  per  cent,  for  discounts,  and  seven  per  cent,  for 
interest. 

The  history  of  the  Bank  of  Stockholm  affords  a 
striking  proof  of  the  effect  of  bank  issues  of  cur- 
rency in  reducing  the  rates  of  interest.  This  insti- 
tution was  established  early  in  the  seventeenth  cen- 
tury by  a  merchant,  and  subsequently,  viz.,  in  1688, 
was  made  a  State  bank.  At  that  date,  as  one  of 
the  conditions  of  the  change,  it  was  limited  to  eight 
per  cent,  as  the  maximum  rate  for  loans  on  good 
security,  and  it  was  required  to  allow  six  per  cent, 
interest  on  all  deposits,  except  those  of  the  gov- 
ernment, which  drew  no  interest.  As  a  conse- 
quence of  its  operations  and  its  growing  credit, 
the  rates  of  interest  rapidly  declined  throughout 
the  kingdom,  and  before  the  close  of  the  century 
the  bank  rate  for  loans  was  successively  reduced 
to  seven,  six,  four,  and  finally  to  three  per  cent, 
per  annum,  while  the  rate  allowed  to  depositors 
.was  reduced,  pari  passu,  until  it  reached  two  per 
cent. 

It  is  obvious  that  during  those  twelve  years 
the  people  of  Sweden  gained  from  cheaper  money 
vastly  more  than  they  could  have  gained  from 
any  saving  in  the  interest  on  the  public  debt  that 
could  possibly  have  been  effected  by  issues  of 
government  currency,  and  they  would  have  been 
greatly  injured  if  such  government  currency  had 
been  maintained  in  circulation  by  the  prohibition 
of  bank-notes — the  policy  pursued  by  the  United 


BANK-NOTE  CIRCULATION  167 

States  since  February,  1862.  I  say  this  has  been 
our  policy,  because  the  National  Bank  notes  are 
truly  a  government  currency  and  possess  none  of 
the  essentials  of  bank-notes.  When  the  system 
was  first  instituted  the  National  Banks  were  able 
to  make  large  profits,  because  they  were  getting 
six  per  cent,  interest  on  the  bonds,  besides  having 
the  use,  free  of  interest,  of  money  amounting  to 
very  nearly  ninety  per  cent,  of  that  invested  in  the 
bonds.  These  profits,  however,  were  not  such  as 
banks  of  issue  make  on  their  circulation,  as  is 
proved  by  the  fact  that  there  is  no  profit  on  the  cir- 
culation at  present,  whereas  if  they  had  been  profits 
made  on  circulation,  they  would  have  been  about 
the  same  during  every  year  of  average  business 
prosperity.  There  is  no  profit  now  on  circulation 
simply  because  at  present  the  bonds  cost  one  hun- 
dred and  fifteen  per  cent.,  yielding  as  an  invest- 
ment only  about  two  and  one-half  per  cent.,  while 
the  circulation  (less  redemption  fund)  is  only  T8T5^, 
or  under  seventy -five  per  cent,  of  the  outlay  for 
bonds.  The  profits  of  the  earlier  period  were  such 
as  accrued  because  the  banks  bought  their  bonds 
for  about  ten  per  cent,  cash  and  ninety  per  cent, 
credit  without  having  to  pay  interest  on  the  credit 
portion  of  such  cost,  although  they  received  inter- 
est on  the  face  of  the  bonds. 

Because  there  was  no  profit  in  it,  the  circula- 
tion of  the  National  Banks  never  did  make  money 
cheap  to  borrowers.  The  issue  of  notes  upon 
bonds  was  a  bonus  given  to  the  banks  by  the 


168  THE  PEOPLE'S  MONEY 

government  in  order  to  secure  their  aid  in  effect- 
ing- two  objects  of  vital  importance,  viz. :  First,  to 
relieve  the  stagnation  in  greenback  circulation; 
and,  secondly,  to  enlarge  the  market  for  govern- 
ment bonds.  Of  these  two  objects  the  first  was 
effected  by  making  National  Bank  notes  redeem- 
able in  greenbacks,  which,  of  course,  encouraged 
the  banks  to  receive  the  latter  on  deposit,  to 
which  they  had  previously  been  averse,  and  the 
second  was  effected  by  putting  it  in  the  power  of 
the  banks  to  borrow  back  from  the  people,  with- 
out interest,  very  nearly  all  the  money  they  were 
lending  to  the  government  at  high  rates  of  interest. 
It  is  just  as  true  in  economics  as  it  is  in  phys- 
ics that  a  given  force  can  produce  only  its  appro- 
priate measure  of  effect,  and  the  corollary  of  this 
theorem  is  also  true  in  both  sciences,  viz.,  that 
you  cannot  infer  a  latent  effect  when  the  obvious 
effect  exhausts  the  full  efficiency  of  the  force. 
Applying  these  principles  to  the  present  case, 
it  must  be  conceded  that  the  risk  taken  by  the 
banks  during  the  war,  in  buying  bonds  and  bank- 
ing on  greenbacks,  were  fully  commensurate  with 
any  profits  made  out  of  the  arrangement  for  cir- 
culation then  or  afterward,  hence  there  is  no 
basis  for  assuming  that  these  profits  produced  any 
effect  in  reducing  rates  of  interest  on  commercial 
loans,  while  all  the  evidence  is  to  the  contrary. 
The  profits  described  having  long  since  ceased, 
of  course  they  cannot  now  have  any  such  effect, 
hence  the  National  Bank  currency  never  has  pos- 


BANK-NOTE  CIECULATION  169 

sessed  one  of  the  essential  qualities  of  a  true  bank- 
note circulation,  viz.,  that  of  cheapening  loans.* 

That  notes  issued  against  deposited  bonds 
never  can  tend  to  the  cheapening  of  loans  will  be 
evident  when  it  is  considered  that  such  notes  de- 

*  The  relation  of  the  National  Banks  to  the  currency  is  very 
imperfectly  understood  generally,  and  by  many  persons  it  is 
wholly  misunderstood. 

The  fact  is,  the  "National  Currency,"  which  is  the  legal  desig- 
nation of  the  circulating  notes  bearing  the  names  of  different 
National  Banks,  is  not  in  any  true  sense  of  the  term  a  bank-note 
circulation.  These  notes  are  issued  by  the  government  to  the 
banks  only  after  the  bank  has  deposited  in  the  Treasury  United 
States  bonds  exceeding  in  value  the  notes  to  be  issued,  which 
bonds  are  required  by  law  to  be  held  as  security  for  the  redemp- 
tion of  the  notes.  The  bank  in  its  turn  issues  these  notes  to  the 
public,  and  thus  guarantees  their  ultimate  payment,  besides  un- 
dertaking, if  called  upon  to  do  so,  to  furnish  greenbacks  in  ex- 
change for  any  part  of  the  issue. 

Before  a  National  Bank  can  "  take  out "  $9,000  of  circulation, 
it  must  deposit  interest-bearing  bonds  to  the  par  value  of  $10,000, 
and  as  soon  as  it  "  puts  out  "  the  $9,000  in  notes,  it  must  deposit 
$450  in  greenbacks  in  the  Treasury,  as  a  fund  for  current  redemp- 
tions. Thereafter  these  notes,  amounting  to  $9,000,  are  mingled 
in  the  general  currency  of  the  country;  the  bank  cannot  call  them 
in  if  it  would,  and  nobody  ever  thinks  of  bringing  any  of  them  to 
the  bank  for  redemption.  If  they  are  destroyed,  the  government 
is  released  from  their  payment,  but  the  bank  cannot  withdraw 
its  bonds  until  it  makes  a  deposit  as  for  their  redemption. 

When  regarded  practically,  the  arrangements  as  to  the  national 
currency  are  found  to  work  as  follows  : 

A  new  bank  is  to  be  formed  in  some  country  town,  and  the 
enterprising  men  who  unite  to  get  it  up  withdraw  a  portion  of 
the  capital  they  have  invested  in  their  business,  convert  it  into 
money,  and  so  establish  the  bank.  Say  that  together  they  have 
$100,000  paid  in.  It  is  clear  that  if  each  man  had  kept  his  share 
of  that  $100,000,  and  used  it  in  his  business,  the  town  would  have 


170  THE  PEOPLE'S  MONEY 

rive  their  existence  from  the  deposit  of  the  bonds 
and  their  value  from  that  of  the  bonds ;  they  are 
issued  to  the  bank  really,  not  by  it,  and  while  in 
its  possession  are  a  part  of  its  assets,  being  col- 
had  the  benefit  of  the  whole  sum,  employed  locally,  but  the  Na- 
tional Bank  laws  require  that  a  bank  of  $100,000  capital  shall  de- 
posit $25,000  of  bonds  at  par,  while  they  permit  the  bank  to  get 
on  those  bonds  only  $22,500  in  circulating  notes. 

If  the  subscribers  to  the  new  bank  hold  among  them  the 
$25,000  of  bonds,  then  the  $22,500  of  circulation  would  be  an 
addition  to  the  local  supply  of  currency  of  just  that  amount ; 
but  as  is  almost  invariably  the  case  if  the  bank  has  to  send  to 
Chicago  or  New  York  or  Boston  to  buy  its  bonds,  then  the  very 
first  step  toward  its  organization  takes  away  from  the  place  the 
amount  of  currency  required  to  effect  the  purchase  ;  for  four 
per  cent,  bonds  it  would  take  away  $28,650,  so  that,  even  after 
getting  back  $22,500  in  circulating  notes  issued  to  the  new 
bank,  the  community  would  still  be  deprived  of  the  use  of  over 
$6,000. 

It  thus  appears  that  every  increase  in  the  circulation  of  a  Na- 
tional Bank  transfers  loanable  funds  from  the  place  where  the 
bank  is  located  to  the  place  at  which  it  buys  its  bonds  ;  and  con- 
versely, every  time  a  National  Bank  reduces  or  surrenders  its  cir- 
culation, loanable  funds  are  transferred  back  from  the  place 
where  its  bonds  are  sold  to  the  place  where  the  bank  does  its 
business. 

The  scarcity  and  the  high  price  of  bonds  have  practically  con- 
centrated them  in  a  few  places.  New  York  is  perhaps  the  only 
place  where  there  is  anything  like  a  regular  market  'for  these 
bonds,  and  therefore,  speaking  broadly,  it  may  be  said  that  the 
increase  of  National  Bank  circulation  transfers  loanable  funds 
from  the  country  to  New  York,  and  the  reduction  of  National 
Bank  circulation  re-transfers  those  funds  from  New  York  to 
points  in  the  country. 

It  will  be  seen,  of  course,  that  these  effects  of  contraction  and 
expansion  in  the  volume  of  the  national  currency  are  precisely 
opposite  to  the  effects  produced  by  similar  variations  in  the 
volume  of  a  true  bank-note  currency. 


BANK-NOTE  CIRCULATION  171 

lectively  representative  of  the  bonds,  its  prop- 
erty, deposited  at  Washington.  The  notes  issued 
to  each  National  Bank  are,  indeed,  government 
money  advanced  on  the  bank's  bonds,  and  for  all 
money  purposes  they  are  just  like  the  notes  is- 
sued to  any  other  bank;  the  bank  whose  name 
they  bear  gains  nothing  by  their  prolonged  circu- 
lation. Not  so  with  bank-notes  proper  which  are 
issued  by  the  bank,  have  no  vitality  until  issued, 
and  cease  to  have  any  money  force  the  moment 
they  come  back  to  the  bank  that  issued  them. 

Unlike  the  National  Banks,  under  present  laws 
and  conditions,  true  banks  of  issue  have  an  inter- 
est in  putting  out  all  the  circulation  possible,  and 
in  keeping  it  out  as  long  as  possible,  and  this 
tends  to  the  cheapening  of  loans  in  two  ways. 

First.  The  discount  of  paper  and  the  making  of 
loans  constitute  the  only  way  in  which  a  bank  can 
get  out  circulation ;  hence,  as  between  a  bank  de- 
siring to  extend  its  circulation  and  one  confined  to 
the  use  of  coin  or  government  currency  in  making 
loans,  it  is  obvious  that  the  bank  of  issue  has  the 
greater  incentive  to  lend  and  can  afford  to  take 
lower  rates  of  interest  than  the  other.  Let  us  sup- 
pose two  such  banks  newly  established  in  a  place 
where  prevailing  rates  of  interest  have  been  six  per 
cent.  The  non-issuing  bank  finds  no  inducement 
to  lend  below  that  rate,  but  the  issuing  bank,  reck- 
oning the  profit  on  its  circulation  as  equivalent  to, 
say  two  per  cent,  per  annum,  can  afford  to  lend  as 
low  as  four  per  cent.  Even  if  we  assume  that  the 


172  THE  PEOPLE'S  MONEY 

government  currency  yields  to  the  government  two 
per  cent,  profit,  there  is  no  means  by  which  bor- 
rowers can  derive  any  benefit  from  that ;  but  when 
banks  of  issue  get  such  a  profit,  competition 
quickly  and  invariably  forces  them  to  divide  it 
with  those  who  borrow  of  them,  because  these,  and 
these  only,  by  their  co-operation  render  it  practi- 
cable for  the  bank  to  get  its  notes  into  circulation. 

The  second  way  in  which,  when  banks  are  al- 
lowed to  issue  notes,  rates  of  interest  are  brought 
lower  than  they  are  when  the  circulation  consists 
wholly  of  coins  and  government  currency,  is 
through  an  elasticity  in  the  volume  of  bank  issues, 
which  has  no  counterpart  in  the  other  system. 
Banks  of  issue  may  expand  their  circulation  as 
the  demand  for  accommodation  expands,  the  rate 
of  expansion  being  limited  only  by  the  ratio  of  in- 
crease in  the  reserve  held  to  secure  the  redemp- 
tion of  the  notes  on  demand.  A  specie  reserve  of 
one  dollar  to  every  three  or  four  dollars  of  circula- 
tion has  generally  been  accepted  as  sufficient  to 
insure  the  complete  efficiency  of  bank-note  circula- 
tion ;  hence,  when  there  is  an  active  demand  for 
money,  the  bank  of  issue  that  gets  in  $1,000  in 
specie  may  issue  against  it  $3,000  or  $4,000  of  notes, 
whereas  under  present  conditions  no  bank  can  lend 
out  more  than  the  $1,000  it  has  taken  in  and  Na- 
tional Banks  may  lend  only  $750  or  $850,  according 
to  location. 

This  power  to  expand  the  circulation  very  ma- 
terially modifies  the  effect  of  the  forces  which 


BANK-NOTE  CIRCULATION  173 

operate  from  time  to  time  to  enhance  the  rate 
of  interest,  and  if  the  banks  authorized  to  issue 
notes  are  numerous,  widely  dispersed,  and  sub- 
jected to  proper  regulations  and  restraints  as  to 
such  issues,  they  cannot  fail  to  be  always  compet- 
ing to  put  out  loans,  because  they  will  be  under 
the  strongest  solicitations  of  selfish  advantage  to 
do  so,  and  such  competition  must  cheapen  rates  of 
interest. 

It  must  not  be  forgotten,  however,  that  the 
power  to  put  out  four  dollars  of  notes  for  one  dol- 
lar of  specie  acquired  is  inseparable  from  the  ob- 
ligation to  retire  four  dollars  of  the  bank's  circu- 
lation for  every  specie  dollar  withdrawn  from  its 
vaults ;  hence  the  importance  of  numbers,  wide 
distribution,  and  intelligent  effective  regulation. 
Numbers  and  wide  distribution  are  sufficient  to 
discourage  and  to  defeat  efforts  at  withdrawals  of 
specie  for  the  purpose  of  producing  monetary 
stringency  through  enforced  contraction,  for  it  is 
evident  that  no  such  effort  would  promise  success 
with  six  thousand  banks  of  issue  scattered  all  over 
the  United  States,  distributed  as  our  National  and 
State  Banks  are  and  enjoying  a  like  degree  of 
credit.  There  could  hardly  be  any  conceivable 
contingency  in  which  the  circulation  of  all  these 
banks  would  simultaneously  stand  at  the  maximum 
proportion  to  coin  reserve,  while  under  ordinary 
circumstances  it  is  impossible  but  that  many  would 
have  available  a  margin  for  expansion  equal  to 
any  probable  contraction  brought  about  by  ma- 


THE  PEOPLE'S  MONEY 

nipulation  of  a  few.  This  safeguard  could  be  as- 
sured if  a  small  tax  were  laid  upon  circulation,  com- 
puted upon  the  amounts  outstanding  at  the  end  of 
each  month,  for  that  would  operate  as  an  induce- 
ment to  banks  not  to  keep  out  issues  in  excess  of 
the  demand  for  loans  at  fair  rates  of  interest. 

All  periods  of  monetary  stringency  have  fol- 
lowed periods  of  ease  and  cheap  money  ;  indeed 
they  are  produced  by  the  recoil  of  the  over-bor- 
rowing and  over-trading  which  are  fostered  by 
cheap  money,  hence  as  a  means  to  prevent  the 
periodical  recurrence  of  stringency  and  panic  a 
proper  system  of  bank-note  circulation  possesses 
some  advantages  of  an  important  character.  With 
our  currency,  as  at  present  constituted,  every  dol- 
lar withdrawn  from  circulation  counts  against  bor- 
rowers everywhere,  and  there  is  no  provision  for  a 
compensating  expansion  of  issues  anywhere.  The 
force  of  this  will  more  fully  appear  when  it  is 
remembered  that  rates  of  interest  are  prices  of 
loans,  and  that,  like  all  other  prices,  they  must  vary 
with  the  varying  relations  between  demand  and 
supply ;  that  is  to  say,  when  the  supply  of  loanable 
funds  exceeds  the  demand  for  loans,  rates  of  inter- 
est decline ;  when  demand  exceeds  supply,  rates  of 
interest  rise.  Now,  under  a  system  of  bank-note 
circulation,  the  volume  of  the  currency  changes 
automatically  with  changes  in  rates  of  interest, 
hence  under  such  a  system  there  is  a  constant  ten- 
dency toward  steadiness  both  in  rates  of  interest 
and  in  volume  of  currency. 


BANK-NOTE   CIRCULATION  175 

It  is,  however,  in  the  performance  of  that  pri- 
mary function  of  money,  which  consists  in  effecting- 
industrial  and  commercial  exchanges  that  a  bank 
currency  is  chiefly  superior  to  a  currency  of  coin 
and  government  paper,  singly  or  mixed.  It  may 
be  admitted,  with  certain  reservations  not  perti- 
nent to  the  present  question,  that  under  normal 
conditions  bank-notes  and  Treasury  due-bills  are 
equally  available  for  measuring,  and  thus  compar- 
ing, contemporary  values,  and  to  that  extent  they 
are  equally  efficient  in  promoting  the  exchange  of 
industrial  products;  but  to  accomplish  such  ex- 
changes something  more  is  requisite  than  a  com- 
parison of  values,  and  that  is  the.  actual  presence 
of  money  sufficient  for  the  liquidations  involved  in 
the  series  of  transactions  by  which  one  group  of 
products  is  exchanged  for  another. 

Take,  for  example,  the  series  of  exchanges  by 
which  a  farmer's  crop  of  wheat  becomes  converted 
into  fuel,  lumber,  horses,  vehicles,  tools,  furniture, 
groceries,  clothing,  schooling  for  his  children,  re- 
ligious comfort,  medical  attendance,  travelling  ex- 
penses, etc.  At  every  step  in  this  series  some 
money  must  pass  from  one  person  to  another,  and 
in  order  that  there  may  be  neither  obstruction  nor 
friction  there  must  be  money  available  at  the 
time  and  place  of  each  transaction.  Now  when 
the  only  money  in  circulation  is  in  the  form  of 
coins  or  government  certificates  for  coins,  or  Treas- 
ury notes,  the  entire  volume  of  the  country's  cur- 
rency is  more  or  less  fixed  as  to  its  total  amount, 


176  THE  PEOPLE'S  MONEY 

and  for  the  reason  explained  in  Chapter  XIII.  it 
becomes  distributed  from  time  to  time  according  to 
relative  employment  for  it  in  different  parts  of  the 
country.  In  that  chapter  it  was  pointed  out  that 
idle  money  being  a  burden,  no  individual  and  no 
community  keeps  it ;  hence,  since  purely  agricult- 
ural communities  use  very  little  money  during  long 
periods  of  each  year,  very  little  is  retained  there. 
On  the  other  hand,  when  crops  ripen  and  have  to 
be  harvested  and  marketed,  a  great  deal  of  money 
is  required  in  those  communities,  and,  as  it  is  not 
present,  it  must  be  brought  there,  and  that  in- 
volves delay,  expense,  and  sometimes  inability  to 
command  a  sufficient  supply. 

Now  no  augmentation,  gradual  or  spasmodic, 
in  government  issues  of  currency  or  in  Treasury 
disbursements  of  surplus  revenue,  can  obviate  this 
inconvenience  and  expense  to  farmers,  because  a 
currency  abundant  even  to  the  point  of  redun- 
dancy never  overflows  into  places  where  there  is 
no  profitable  employment  for  money,  but  the  ex- 
cess becomes  absorbed  in  speculation,  and  that 
is  carried  on,  not  on  farms  but  in  cities.  On 
the  other  hand,  banks  of  issue,  located  in  agri- 
cultural sections,  are  admirably  adapted  to  sup- 
plying with  their  issues  of  notes  these  annual 
and  comparatively  brief  periods  of  demand  for 
money  for  moving  the  crops,  and  farmers  whose 
needs  are  thus  supplied  are  neither  subjected 
to  heavy  discounts  on  the  drafts  drawn  against 
their  produce  nor  delayed  in  marketing  their 


BANK-NOTE  CIKCULATION  177 

crops,  or  in  making  their  purchases,  by  the  want 
of  money. 

Under  our  present  system  of  currency,  during 
the  months  from  March  to  August,  the  bulk  of  the 
circulating  medium  is  finding  its  way,  at  much 
expense  for  expressage,  and  much  cost  in  loss  of 
interest,  from  thousands  of  points  all  over  the 
country  to  the  cities,  and  ultimately  it  becomes 
concentrated  at  a  few  centres ;  then,  during  Sep- 
tember, October,  and  November,  it  has  to  be  re- 
distributed, at  like  expense,  whereas  if  our  six 
thousand  banks  were  allowed  to  issue  notes,  as 
the  State  banks  did  before  1862,  a  great  part  of 
this  trouble  and  expense  would  be  avoided. 

If  country  banks  were  required  to  keep  a  re- 
serve of  twenty  per  cent,  against  their  note  issues 
their  entire  autumnal  expansion  would  cost  just 
one-fifth  of  what  it  now  costs  to  fetch  currency, 
and,  under  a  proper  system  of  redemption  centres, 
the  expense  could  be  still  further  curtailed.  What 
is  true  of  agricultural  communities  is  equally,  if 
less  strikingly,  true  of  every  other  locality  where 
more  money  is  needed  at  one  season  than  at 
others,  and  it  would,  moreover,  be  a  sensible  relief 
to  the  cities  and  principal  centres  to  escape  the 
annual  dumping  upon  them  of  the  currency  that, 
having  performed  its  brief  mission  throughout  the 
country,  comes  back  to  them  to  be  "  carried  "  until 
the  next  harvest  comes  around.  In  considering 
the  relative  utility  of  the  two  classes  of  banks  to  a 
population  which,  like  ours,  is  wholly  immersed 
12 


178  THE  PEOPLE'S  MONEY 

in  industry,  special  attention  should  be  given  to 
the  subject  of  domestic  exchanges,  because  these 
attend  every  transfer  of  products  or  commodities 
from  one  ownership  or  one  locality  to  another,  and 
they  are  conducted  wholly  by  banks  and  bankers. 

The  transactions  in  domestic  exchange  have 
been  very  much  cheapened  by  the  establishment 
of  a  fixed  monetary  unit,  and  by  the  laws  and  reg- 
ulations which  keep  all  the  elements  of  our  cur- 
rency constant  in  value  and  therefore  interchange- 
able everywhere;*  but  the  saving  thus  effected 
would  be  very  much  greater  if  all  our  National 
Banks  were  true  banks  of  issue,  for  that  would 
greatly  relieve  the  necessity  of  so  much  of  our 
costly  "  currency  movements  "  as  now  consist  of 
the  outflow  "to  move  the  crops,"  and  the  return 
of  the  wave  after  the  crops  have  been  marketed. 
In  some  parts  of  the  country  there  are  four  such 
tidal  movements  in  the  year,  in  others  there  are 
ordinarily  only  two,  but  with  properly  regulated 
banks  of  issue  the  necessity  would  pass  away  for 
any  movement  in  excess  of  such  transfers  of  specie 
as  may  be  requisite  to  support  a  local  expansion 
of  bank-note  issues.  This  would  certainly  re- 
duce the  expense  to  a  third  or  a  fourth  of  what  it 
is  now,  and  in  time  it  would  probably  be  reduced 
even  below  this  by  the  retention  of  specie  from 
one  period  to  another. 

We  had  once  in  this  country  a  great  many  banks 

*  It  is  a  mistake  to  attribute  the  cheapening  of  domestic  ex- 
change wholly  to  the  National  Bank  currency. 


BANK-NOTE  CIRCULATION  179 

chartered  by  the  different  States  and  authorized 
to  issue  notes  payable  to  the  bearer  on  demand. 
These  notes  constituted  for  a  long  time  the  prin- 
cipal currency  of  the  country,  and,  notwithstand- 
ing the  manifold  and  glaring  imperfections  of  the 
system,  there  was  virtue  enough  in  the  principle 
it  embodied  to  neutralize  many  of  the  inconven- 
iences and  even  dangers  incident  to  its  unregu- 
lated application.  Confidence  of  course  was  es- 
sential to  the  circulation  of  the  State  bank-notes, 
for  the  moment  anything  happened  to  impair  the 
public  confidence  in  the  ability  of  any  bank  to  re- 
deem its  notes  that  moment  the  note-holders  made 
"a  run"  for  their  money.  It  was  therefore  vital 
to  banks  of  issue  to  maintain  their  credit,  and  to 
this  end  a  reputation  for  prudent  management,  as 
well  as  for  integrity,  was  essential. 

A  well-managed  bank  of  issue  got  its  notes  into 
circulation  not  by  buying  property  with  them  [for 
in  that  case  their  value  would  have  been  locked  up 
in  the  property,  and  until  the  property  was  sold 
the  notes  could  not  be  redeemed],  but  by  exchang- 
ing them  for  the  notes,  drafts,  or  acceptances  of 
individuals  and  firms  engaged  in  business,  "  com- 
mercial paper "  as  it  is  called.  The  bank's  profit 
was  obtained  in  the  form  of  discount  or  interest  on 
the  commercial  paper,  the  bank-notes  carrying  no 
interest.  To  put  out  a  circulation  in  this  way  was 
regarded  as  intelligent  and  prudent  banking,  if 
care  was  taken  in  the  selection  of  the  commercial 
paper  "  done,"  if  the  maturities  of  this  paper  corre- 


180  THE  PEOPLE'S  MONEY 

sponded  with  the  probable  course,  as  to  time,  of  the 
bank's  circulation,  and  if  the  volume  of  notes  thus 
put  out  was  adjusted  to  the  capacity  of  the  com- 
munity to  absorb  currency. 

Reduced  to  its  ultimate  analysis  this  system  of 
banking  consisted  in  borrowing  from  the  public 
at  large,  without  interest,  the  money  value  which 
the  bank  lent  to  its  customers  upon  interest;  it 
therefore  was  an  exchange  of  corporate  and  finan- 
cial credit  for  individual  and  commercial  credit, 
the  bank-notes  issued  to  borrowers  being  eventu- 
ally paid  back  to  the  bank  in  settlement  of  loans, 
having  meanwhile  circulated  in  the  community  as 
money. 

Manifestly  this  kind  of  money  is  much  more 
economically  obtained  than  the  same  amount  of 
gold  and  silver,  consequently  communities  where 
it  prevails  are  enabled  by  it  to  use,  productively, 
whatever  proportion  of  their  capital  they  would 
otherwise  have  to  keep  in  the  unproductive  form 
of  coin. 

Under  such  a  system  of  banking,  however,  the 
cost  of  a  metallic  currency  is  not  wholly  avoided, 
because  some  coin  has  to  be  kept  by  the  banks. 
This  coin  is  the  connecting  link  between  the  bank- 
note and  the  monetary  unit,  for  it  is  the  medium 
of  redemption  of  the  notes.  Identity  of  value  be- 
tween the  bank-note  dollars  and  the  monetary  unit 
is  essential  both  to  the  bank  and  to  the  holder  of 
its  notes,  for  the  latter  requires  assurance  as  to 
this  identity  before  extending  his  confidence  to  the 


BANKNOTE  CIRCULATION  181 

notes,  and  the  former  is  ready  to  furnish  such  as- 
surance, because  it  absolutely  depends  upon  that 
confidence  to  keep  its  circulation  afloat.  This 
system  of  banking-,  beginning-  in  England,  acquired 
its  highest  British  development  in  Scotland,  and 
grew  up  in  this  country  as  soon  as  the  adoption 
of  the  Federal  Constitution  of  1787  and  the  mone- 
tary legislation  of  Congress  established  a  founda- 
tion for  it  in  the  institution  of  metallic  money  and 
a  definite  and  stable  monetary  unit. 

Though  there  were  many  imperfections  of  sys- 
tem, and  numerous  instances  of  dishonest,  igno- 
rant, and  imprudent  management,  most  of  the 
banks  of  issue  under  State  charters  were  so  man- 
aged as  to  materially  promote  the  prosperity  of 
the  communities  where  they  were  established. 
They  contributed  to  the  wide  diffusion  of  wealth, 
and  they  played  an  important  part  in  educating 
the  people  commercially  and  financially,  as  well 
as  in  stimulating  and  promoting  the  development 
of  our  natural  resources  and  the  improvement  of 
our  methods  of  communication  and  transporta- 
tion. In  1862  the  National  Bank  Act  put  an  end 
to  this  system  of  banking.  If  we  look  upon  that 
act  as  simply  a  measure  of  war  finance  it  cannot  be 
too  greatly  praised,  for  certainly  it  was  one  of  the 
most  ingenious  conceptions  recorded  in  history, 
and  its  success  places  it  among  the  highest 
achievements  of  financial  ability.  It  is  probable, 
however,  that  if  the  great  man  who  conceived  and 
established  this  system  could  to-day  look  upon  our 


182  THE  PEOPLE'S  MONEY 

country,  reunited  and  genuinely  reconciled,  where 
an  enormous  growth  of  corporate  power  and  a 
dangerous  concentration  of  wealth  are  coincident 
with  the  widening  of  those  social  borders,  within 
which  plodding  industry  sees  no  prospect  but  of  an 
indefinite  continuance  of  the  need  to  plod,  he  would 
see  now  as  clearly  what  are  the  present  needs  of 
the  people  as  he  saw  their  needs  in  1862.  That 
they  are  very  different  must  be  obvious  to  all  who 
study  our  surroundings;  that  the  National  Bank 
system  should  now  be  set  free  to  issue  notes,  under 
proper  restraint  and  regulation,  would  no  doubt 
be  recognized  by  Mr.  Chase  himself. 

In  speaking  of  the  banks  of  issue  in  a  previous 
part  of  this  chapter  it  was  said  that  prudent  and 
intelligent  banking  forbids  a  bank  to  endeavor  to 
get  its  notes  in  circulation  by  buying  property 
with  them.  This  principle  does  not  depend  upon 
the  property  not  being  profitable  to  hold,  or  not 
being  likely  to  appreciate  in  value,  or  not  being 
readily  salable,  but  it  depends  wholly  upon  the 
financial  truth,  established  both  by  reason  and  ex- 
perience, that  it  is  not  good  banking  to  lock  up  a 
bank's  funds  in  anything  that  has  to  be  sold  in  the 
local  market  in  order  to  get  them  out  again.  The 
only  legitimate  investment  for  the  funds  of  a 
bank  is  the  commercial  paper  which  represents 
the  actual  industrial  operations  of  the  community, 
and  which  presumably  will  be  paid  at  maturity. 

No  argument  is  necessary  to  prove  how  depend- 
ent industry  is  upon  the  convenience  afforded  by 


BANK-NOTE   CIECULATION  183 

a  market  for  commercial  paper,  nor  how  necessary 
it  is  that  loanable  capital  should  be  encouraged  to 
enter  this  market  and  should  be  protected  by  law 
in  its  dealings  with  capital  productively  invested ; 
but  we  need  to  realize  this  dependence  and  this 
necessity  in  order  to  appreciate  how  important  are 
the  functions  of  banks  in  this  relation,  and  how 
fundamental  is  the  need  of  an  effective  banking 
system  to  general  prosperity  among  the  people. 
At  present,  however,  we  may  disregard  these  con- 
siderations and  confine  our  attention  to  the  appli- 
cation of  the  principles  so  far  established.  These 
principles  forbid  a  bank  to  invest,  in  any  perma- 
nent form  whatever,  the  value  it  borrows  from  the 
public  at  large  upon  the  notes  it  issues  payable 
on  demand.  Now  the  National  Banks  are  required 
by  law  to  violate  this  ancient  and  well-established 
rule,  for  while  it  is  true  that  the  capital,  wholly  or 
in  part,  is  first  invested  in  bonds,  and  then  the 
notes  issued  upon  the  bonds  are  available  for  in- 
vestment in  commercial  paper,  yet  the  effect  is  the 
same  as  if  the  capital  were  held  in  money  and  the 
notes  invested  in  the  bonds.  Take  a  bank  with 
a  paid-in  capital  of  $1,000,000  and  a  circulation 
of  $900,000.  The  effective  force  of  such  a  bank 
as  an  auxiliary  to  productive  industry  should  be 
$1,900,000,  but  is  really  less  than  $1,000,000,  be- 
cause, as  the  bank  holds  $1,000,000  in  United 
States  bonds  as  a  basis  of  circulation,  the  bond 
investment  locks  up  from  $1,000,000  to  $1,150,000, 
according  to  the  class  of  bonds  held,  and  leaves 


184:  THE  PEOPLE'S  MONEY 

the  bank  only  from  $750,000  to  $900,000  effective 
capital.* 

Now  it  is  manifest  that  practically  it  can  be 
of  no  consequence  whatever  whether  the  amount 
locked  up  in  the  bonds,  say  generally  $1,150,000,  is 
obtained  from  the  $1,000,000  paid  in  by  sharehold- 
ers as  capital,  plus  the  $900,000  represented  by 
circulation,  or  whether  it  is  obtained  by  adding  to 
the  $900,000,  represented  by  circulation,  $250,000 
out  of  the  $1,000,000  capital.  Either  way  the  pub- 
lic, shareholders  and  note-holders  combined,  have 
put  into  the  bank  $1,900,000  of  money  or  its 
equivalent,  and  they  are  getting  the  use  of  only 
$750,000  of  this  sum,  while  under  the  former  sys- 
tem they  would  have  the  use  of  the  whole  $1,900,- 
000,  while  the  bank  would  hold  against  it  not 
government  bonds  locked  up  at  Washington,  and 
constantly  depreciating  in  value,  but  gold  and  sil- 
ver coin  to  the  amount  of  $300,000  to  $400,000, 
and  commercial  paper  constantly  and  continuously 
running  to  maturity  and  amounting  to  $1,500,000 
to  $1,600,000. 

Contrasting  the  two  systems  as  sources  of  circu- 
lation, the  one  reduces  the  available  money  of  the 
community  from  $1,000,000  to  $750,000,  an  actual 
contraction  of  $250,000  on  every  million,  or  twenty- 
five  per  cent.,  while  the  other  increases  it  from 
$1,000,000  (original  capital)  to  $1,900,000,  less 

*  For  obvious  reasons  the  banks  generally  hold  four  per  cent, 
bonds,  so  that  the  larger  figure  is  nearer  the  average  than  the 
smaller. 


BANK-NOTE  CIRCULATION  185 

$300,000  to  $400,000  coin  reserved,  say  to  $1,- 
550,000,  making  an  addition  of  fifty-five  per  cent, 
to  the  local  supply  of  loanable  funds. 

Another  feature  of  the  National  Bank  system 
which  will  prove  a  source  of  great  weakness  in 
case  of  disaster  is  the  practical  inconvertibility 
of  the  notes.  True,  the  banks  must  maintain  a 
redemption  fund ;  but  while  this  is  a  requirement 
onerous  and  expensive  to  the  banks,  it  is  not  an 
absolute  protection  to  the  public,  because  this 
fund  may  consist  wholly  of  greenbacks.  Now,  as 
a  matter  of  fact,  speaking  financially,  the  National 
Bank  notes  are  more  valuable  than  the  green- 
backs, because  the  greenbacks  are  simply  non- 
interest-bearing  obligations  of  the  government, 
while  the  National  Bank  notes  are  secured  by  the 
interest-bearing  obligations  of  the  same  govern- 
ment, worth  from  ten  to  twenty-five  per  cent,  more 
than  the  notes  they  secure,  and  this  collateral  is 
reinforced  by  a  first  lien  on  all  the  bank's  assets 
and  the  liability  of  its  stockholders  to  replace  all 
impairments  of  the  original  capital. 

It  is  manifest,  therefore,  that  regarded  simply 
as  securities,  the  National  Bank  notes  are  of  a 
higher  order  than  the  greenbacks,  and  hence  the 
convertibility  of  the  former  into  the  latter  is  upon 
its  face  an  inversion  of  terms. 

The  greenbacks,  however,  have  an  advantage 
over  National  Bank  notes  in  two  respects  that  may 
cause  them  to  be  preferred  in  certain  contingen- 
cies ;  first,  they  are  legal  tender ;  second,  they  are 


186  THE  PEOPLE'S  MONEY 

redeemable  in  coin.  Their  legal-tender  function, 
as  we  have  seen,  is  an  artificial  force  conferred  by 
law,  their  convertibility  into  coin  depends  upon 
the  ability  of  the  government  to  maintain  it  upon 
a  reserve  of  $100,000,000  of  gold. 

The  total  volume  of  National  Bank  currency 
outstanding  November  1,  1892,  as  reported  by  the 
Comptroller  of  the  Currency,  page  4  of  his  An- 
nual Eeport,  was  about  $172,000,000.  This  was  re- 
deemable in  greenbacks,  and  the  greenbacks  are 
by  law  redeemable  in  coin.  To  meet  this  obliga- 
tion the  Secretary  of  the  Treasury  holds  $100,- 
000,000  in  gold  against  the  total  greenback  issue 
of  $346,000,000.  Now  in  case  a  condition  of  things 
should  arise  leading  to  a  run  upon  this  reserve, 
holders  of  the  National  Bank  notes  would  demand 
greenbacks  for  them  and  then  use  the  greenbacks 
to  obtain  gold.  Consequently  the  $100,000,000  of 
gold  is  the  coin  basis  of  the  National  Bank  circu- 
lation and  of  the  greenbacks  also,  which  is  -JfJ,  or 
less  than  twenty  per  cent.,  of  the  circulation  rest- 
ing upon  it,  while  under  the  old  system  the  coin 
reserve  was  from  thirty  to  forty  per  cent.  From 
this  point  of  view,  therefore,  the  National  Bank 
note  circulation  does  not  appear  to  be  as  well 
equipped,  as  to  convertibility,  as  was  the  old  State 
bank  circulation. 

This  is  not  the  place  to  discuss  how  the  present 
system  could  be  modified  so  as  to  preserve  its  ad- 
vantages and  remedy  its  defects,  but  enough  has 
been  said  to  suggest  the  direction  in  which  im- 


BANK-NOTE   CIKCULATION  187 

provements  may  be  made  with  profit  to  the  banks 
and  convenience  to  the  people.  For  the  purpose 
of  our  present  inquiry  it  is  sufficient  to  show,  as 
has  been  done  in  this  chapter,  that  bank-notes 
may  constitute  a  part  of  the  general  currency,  and 
that  there  are  many  considerations  of  economy, 
convenience,  and  industrial  advantage  which  favor 
their  use  under  proper  safeguards  as  to  security 
and  convertibility. 

It  being  clear  that,  regarded  merely  as  a  substi- 
tute for  coin,  bank-notes  are  more  profitable  to  a 
community  than  government  notes,  the  next  point 
is  as  to  the  relative  liability  to  depreciation  of 
these  two  kinds  of  currency.  The  first  point  of 
difference  between  them  in  this  respect  is  funda- 
mental, because  it  lies  in  the  basis  of  their  issue. 
As  has  been  seen,  the  government  notes  are  issued 
to  creditors  of  the  government,  while  the  bank- 
notes are  issued  to  debtors  to  the  bank.  The 
government  "  pays  "  its  debts  in  its  own  notes,  but 
the  person  so  "  paid  "  is  really  not  paid  until  he 
has  exchanged  those  notes  for  their  face  value 
in  something  else ;  all  successive  holders  of  the 
notes  become  in  turn  creditors  of  the  government, 
which  through  its  taxing  power  creates  a  debt  to 
itself  equal  in  amount  to  the  aggregate  of  the 
debts  it  has  put  off  by  the  device  of  "paying" 
them  in  its  own  notes,  and  also  compels  taxpayers 
to  give  their  property  for  those  notes  in  order 
to  discharge  their  taxes  by  returning  the  notes  to 
the  Treasury. 


188  THE  PEOPLE'S  MONEY 

A  bank,  on  the  other  hand,  issues  its  notes 
only  to  those  who  voluntarily  become  indebted  to 
it,  and  the  bank-notes  are  in  effect  the  bank's  en- 
dorsement or  guarantee  of  that  debt,  on  which  the 
debtor  is  enabled  to  obtain,  by  means  of  the 
bank's  credit,  that  which  he  could  not  get  on  his 
own  credit,  whether  it  be  commodities,  services,  or 
gratifications.*  The  only  way  in  which  a  bank  of 
issue  can  put  out  circulation  is  by  discounting 
paper,  and  in  every  case  the  maker  of  the  paper 
becomes  a  debtor  to  the  bank  before  he  becomes  its 
creditor  by  being  a  holder  of  its  notes ;  in  fact,  he 
borrows  the  notes  on  his  own  credit  or  on  that  of 
his  endorser,  or  on  the  validity  of  collateral  secur- 
ity. Thus,  for  the  redemption  of  its  own  notes  the 
bank  holds  the  security  it  exacts  from  its  debtors, 
while  against  the  government  notes  there  is  no 
provision  for  redemption  but  the  government 
power  to  levy  and  to  collect  taxes. 

It  is  true  that  when  and  as  long  as  both  the  gov- 
ernment notes  and  the  bank-notes  are  convertible 
into  coin  on  demand,  they  are  mutually  intercon- 
vertible, and  therefore  of  equal  value  to  the  recip- 
ient; but  since  both  are  liable  to  become  incon- 
vertible into  coin,  it  makes  a  great  difference  to 
the  public  whether  the  notes  in  their  hands  are 
tokens  which  are  extinguished  when  used  to  dis- 
charge debts  which  the  holders  have  voluntarily 
contracted  with  the  banks,  and  of  which  they  have 
already  received  the  full  worth,  or  are  pledges  of 
*See  Chapter  XIII.,  page  145. 


BANK-NOTE  CIKCULATION  189 

the  government  which,  though  legal  tender  for 
private  debts,  it  can  redeem  only  by  exacting  their 
surrender  in  satisfaction  of  taxes  which  its  power 
enables  it  to  levy,  and  which  it  is  free  to  adjust  to 
the  outstanding  volume  of  such  pledges. 

There  is  another  point :  No  bank  has  any  obli- 
gations inconsistent  with  that  of  preserving  its 
solvency,  so  that  every  bank  that  is  honestly  and 
intelligently  managed  will  generally  have  assets 
sufficient  to  meet  its  liabilities;  but  governments 
are  subject  to  political  and  other  influences  tend- 
ing to  extravagance,  and  nothing  is  so  well 
adapted  for  disguising  extravagance  as  the  power 
to  issue  paper  money — nay,  nothing  is  so  condu- 
cive to  extravagance  as  that,  because,  generally, 
currency  inflation  commands  popular  applause. 
On  this  ground,  therefore,  it  is  wiser  to  use  bank- 
notes than  to  permit  the  government  to  issue  paper 
money.  If  among  a  multitude  of  banks  a  few  be- 
come insolvent,  the  harm  done  is  limited  in  scope, 
but  when  a  government  becomes  extravagant,  the 
mischief  is  wide -spread  and  incalculable. 


CHAPTEE   XVI. 

THE  BALANCE  OF  TEADE 

Every  man  in  business  understands  what  is 
meant  by  making  his  bank  account  good.  He 
knows  that  however  large  may  be  the  aggregate 
amount  of  his  checks  and  deposits  during  the  day, 
all  that  he  has  to  be  careful  about  is  that  the  re- 
sulting balance  is  in  his  favor.  If  he  begins  the 
day  with  only  one  dollar  in  bank,  he  may  draw 
checks  for  thousands,  and  even  millions,  and  have 
them  honored,  provided  he  deposits  cash,  checks, 
or  exchange,  to  an  equal  or  greater  amount,  before 
the  bank  closes  in  the  afternoon.  The  balance  is 
the  only  thing  regarded,  either  by  the  bank  or  by 
the  merchant.  If  this  is  not  settled  the  merchant 
is  discredited,  he  is  financially  disabled. 

When  several  banks  are  doing  business  in  the 
same  place,  each  will  receive  from  its  depositors 
checks  upon  the  others.  In  settlements  between 
these  banks  the  balances  only  are  regarded.  If 
there  is  no  clearing-house  each  bank  pays  to,  or 
receives  from,  every  other  bank  the  balance  re- 
sulting from  mutual  demands.  If  there  is  a  clear- 


THE  BALANCE  OF  TKADE  191 

ing-house,  each  pays  or  receives  its  own  general 
balance  through  that  institution.  Thus  it  appears 
that  banks  bring  to  a  balance  on  their  books  the 
operations  of  their  depositors  and  then  settle 
balances  between  themselves,  and  that  it  is  only 
these  balances,  and  not  the  transactions  from  which 
they  result,  that  are  settled  in  money.* 

Where  there  are  banks  and  clearing-houses, 
therefore,  all  the  varied  operations  of  a  great 
mercantile  community  may  go  on  without  any 
money  passing,  except  what  is  required  to  settle 
balances,  to  pay  wages,  and  to  carry  on  the  retail 
trade.  The  same  principle  obtains  in  settlements 
between  cities.  A  bank  in  Chicago  makes  collec- 
tions for,  remits  exchange  to,  and  draws  drafts 
upon,  its  correspondent  bank  in  New  York  to  a 
very  large  amount  every  day,  but  no  money  need 
be  remitted,  except  to  settle  an  adverse  balance; 
nor  can  the  New  York  bank  be  called  upon  to 
remit  money  to  Chicago,  unless  the  balance  is  in 
favor  of  the  Chicago  bank.  The  state  of  the  bal- 
ance between  the  two  cities  influences,  but  does 
not  of  itself  alone  determine,  the  rate  of  exchange 
on  New  York  at  Chicago ;  but  the  rate  of  exchange 
determines  currency  movements  between  the  two 

*  As  a  matter  of  fact,  some  money  is  deposited  in  bank  every 
day  by  people  who  have  drawn  no  checks  that  day,  or  by  those 
whose  deposits  exceed  their  drafts,  and  such  money  does  not  go 
into  bank  in  order  to  settle  balances,  but  such  deposits  are  vol- 
untary and  for  the  convenience  of  the  depositors  ;  they  are  not 
made  under  stress  of  obligation,  as  are  the  deposits  which  make 
the  bank  account  good. 


192  THE  PEOPLE'S  MONEY 

cities,  and  practically  brings  it  about  that  only  the 
final  balance  between  all  the  banks  in  Chicago,  on 
the  one  hand,  and  their  correspondents  in  Now 
York,  on  the  other,  is  settled  in  money. 

The  foreign  trade  of  the  country  is  carried  on  by 
means  of  bills  of  exchange  payable  in  London, 
Paris,  etc.,  the  bankers  here  purchasing  and  remit- 
ting bills  drawn  against  exports  and  supplying 
their  own  drafts  to  importers  to  pay  for  goods 
brought  into  the  country.  Here,  again,  it  is  the 
balance  only  that  has  to  be  settled  in  money.  If 
the  values  imported  exceed  those  exported,  rates 
of  exchange  rise,  and  money  must  be  shipped 
abroad;  if  exports  exceed  imports  in  value,  ex- 
change falls,  and  money  comes  from  abroad. 

It  is  interesting  to  observe  that  even  amid  the 
countless  transactions  of  a  great  city,  like  New 
York  or  London,  indeed  in  the  vast  volume  of 
commerce  between  continents,  the  primary  use  and 
function  of  money  still  survive ;  values  are  ex- 
changed (through  checks  and  bills  of  exchange, 
mere  counters)  as  they  were  in  barter  three  thou- 
sand years  ago ;  and  the  money  comes  in  at  the 
end  only  to  "  even  the  trade,"  to  settle  the  bal- 
ance. What  is  still  more  remarkable  is  that  to- 
day such  settlements  between  nations  are  made  as 
Abraham  settled  with  Ephron,  by  weighing  the 
silver  and  .  gold ;  for  whether  coined  or  not,  the 
precious  metals  in  international  trade  pass  by 
weight,  i.e.,  by  intrinsic  value,  only ;  so  difficult  is 
it  for  man  to  escape  the  operations  of  natural  laws. 


THE  BALANCE  OF  TRADE  193 

Czars,  Parliaments,  and  Congresses  may  coin 
metal  and  emit  paper  money,  Latin  unions,  great 
nations,  and  many  small  communities  may  accept 
these  and  give  them  currency  at  arbitrary  valua- 
tions, each  within  its  own  borders,  but  in  the 
world's  clearing-house  world- wide  values  alone  are 
available,  and  these  must  come  in  pure  metal  and 
must  stand  the  test  of  accurate  weighing.  The 
natural  law  here  seen  in  its  primitive  nakedness 
is  present  throughout  society,  only  there  it  is 
clothed  in  conventional  forms.  A  manufacturer 
may  keep  up  a  circulation  of  his  own  due-bills  in 
the  village  clustered  around  his  mill ;  but  for  raw 
material  and  supplies  purchased  outside  he  must 
pay  the  money  current  at  the  place  of  their  pur- 
chase ;  hence  he  must  exact  this  money  in  payment 
for  his  goods.  Were  it  not  for  the  Constitutional 
prohibition,  a  State  might  sustain  among  its  citi- 
zens, by  taxation,  a  currency  of  its  own  bills  of 
credit,  but  beyond  its  borders  they  would  be  un- 
available as  money ;  so  in  the  United  States  we  use 
among  ourselves  greenbacks,  National  Bank  notes, 
and  standard  silver  dollars,  but  these  will  not  pass 
at  their  home  value  in  the  settlement  of  balances 
in  London,  Paris,  or  Berlin. 

Now  the  law  of  finance  underlying  all  these  in- 
stances is  the  law  embodied  in  clearing-house  rules, 
viz.,  that  when  several  kinds  of  money  are  circulat- 
ing in  the  community,  all  balances  must  be  settled 
in  that  kind  only  which  is  available  for  the  settle- 
ment of  outside  exchanges,  and  from  this  proposi- 
13 


194  THE  PEOPLE'S  MONEY 

tion  there  is  deduced,  as  a  corollary,  the  follow- 
ing principle,  viz.,  that  only  what  is  available  to  set- 
tle balances  at  any  money  centre  is  good  money 
throughout  the  entire  area  within  which  exchanges 
are  focused  on  that  centre. 

The  reason  of  this  is  obvious.  A  man  who  has 
to  make  good  his  balance  in  bank  cannot  accept 
from  his  debtor,  or  in  payment  for  his  services  or 
wages,  anything  but  what  the  bank  will  take,  i.e., 
what  is  known  as  bankable  funds.  The  banks  ex- 
act this  because  they,  too,  must  meet  all  demands 
upon  them,  including  their  clearing-house  bal- 
ances, and  they  can  do  so  only  in  such  funds.  The 
clearing-house  cannot  relax  the  rule,  because  if 
it  did  the  community  would,  under  the  operation 
of  Gresham's  law,  very  soon  lose  all  its  wide- 
range  money  and  have  only  a  local  circulation, 
unavailable  for  meeting  the  demands  upon  it  from 
other  places,  and  that  unavailability  would  para- 
lyze its  business  by  embarrassing  collections,  thus 
discrediting  its  merchants  and  eventually  crip- 
pling the  banks  themselves. 

Now  in  determining  what  are  bankable  funds 
regard  is  had  both  to  form  and  to  definiteness 
of  value.  Requirement  as  to  form  is  expressed  in 
the  term  "cash,"  as  ordinarily  used,  including 
money  and  "  money-at-credit,"  *  at  the  place  of 
observation,  while  that  as  to  definiteness  of  value 
is  'determined  by  the  standard  of  money  value  (the 
monetary  unit)  at  that  financial  centre  which  is  the 
*  See  Chapter  II.,  page  16. 


THE  BALANCE  OF  TEADE  195 

focus  of  exchange  for  the  area  in  which  the  place 
of  observation  is  situated.  This  being  the  case,  it 
follows  that  no  commercial  community  is  entirely 
free  to  set  up  a  local  money  of  its  own ;  if  statute 
laws  do  not  forbid,  natural  laws  will  hinder  and 
embarrass  the  use  of  such  money,  while  every  com- 
mercial community  finds  its  interest  promoted  by 
the  largest  possible  local  circulation  of  that  cur- 
rency, among  all  within  its  reach,  which  has  the 
widest  range.*  In  the  United  States  no  com- 
mercial city  can  afford  to  be  without  money  that  is 
good  in  New  York.  In  New  York  and  other  finan- 
cial centres  there  must  always  be  a  stock  of  money 
that  is  good  in  London.  Even  between  1862  and 
1879  bankers  and  merchants  engaged  in  the  foreign 
trade  at  New  York  were  compelled  to  keep  a  gold 

*  Different  kinds  of  money  are  not  always  equally  within 
reach  of  given  communities.  Of  money  as  of  everything  else, 
the  best  goes  to  those  who  appreciate  it  most  highly,  and  who  can 
afford  to  own  it.  Some  tribes  are  too  poor  to  own  a  currency 
consisting  wholly  even  of  copper,  others  cannot  afford  much,  if 
any,  silver  ;  vast  populations  in  Asia  and  Africa  are  as  yet  un- 
able to  use  gold  to  any  extent,  but  manifestly  each  community 
should,  and  if  not  interfered  with  by  governments  would,  hold  of 
every  kind  of  money  the  precise  quantity  indicated  by  its  needs 
and  its  means.  These  quantities  conform  to  the  habits  of  the 
people.  If  in  any  given  place  the  population  consists  of  one-tenth 
who  habitually  carry  more  than  $10  about  them,  one-tenth  who 
carry  between  $5  and  $10,  three-tenths  carrying  between  $1  and 
$5,  and  the  remainder,  who  seldom  have  as  much  as  a  dollar  at 
a  time,  nearly  three-quarters  of  the  whole  number  of  coins  in 
use  must  be  under  a  dollar,  and  not  more  than  one-tenth  of  the 
number  can  exceed  $10.  The  amounts  held  depend  upon  other 
conditions  not  now  to  be  considered. 


196  THE  PEOPLE'S  MONEY 

currency  circulating  among  themselves  because 
that  money  alone  would  settle  balances  in  Europe. 

That  was  the  only  point  east  of  the  Rocky 
Mountains  where  such  a  currency  was  maintained, 
consequently  by  the  end  of  this  period  the  whole 
trade  of  the  United  States  with  Europe  centred 
in  New  York  more  completely  than  ever  before. 
It  may  be  inferred  that  what  was  thus  forced  upon 
these  bankers  and  merchants  between  1862  and 
1879  was  a  matter  of  immaterial  consequence  to 
the  rest  of  the  people  of  the  United  States;  but 
this  is  not  so.  It  costs  a  great  deal  to  carry  such 
a  currency  in  that  way,  and  the  whole  cost,  be- 
sides a  prqfit  thereon  and  some  compensation  for 
the  risk  and  trouble  involved,  were  taken  out  of  the 
proceeds  of  our  exports  and  added  to  the  cost  of 
imports  in  the  form  of  premiums  of  exchange. 
But  this  was  not  all  the  cost  nor  the  greater  part. 
During  that  period  the  premium  on  gold  fluctu- 
ated between  par  and  one  hundred  and  eighty -five 
per  cent.,  and  as  neither  the  producers  of  our  ex- 
ports nor  the  consumers  of  our  imports  could 
select  the  times  at  which  exchange  was  to  be  sold 
against  exports,  or  that  at  which  bills  must  be 
bought  to  pay  for  imports,  these  two  classes  were  at 
the  mercy  of  dealers  in  exchange,  and  had  to  accept 
and  pay  currency  prices,  computed  at  extreme  gold 
rates  both  ways.  Consumers  of  protected  articles 
suffered  in  the  same  way,  because  the  premium  on 
gold  operated  as  an  addition  to  the  import  duty. 

Now,  while  the  cost  of  carrying  a  metallic  cur- 


THE   BALANCE   OF  TKADE  197 

rency  can  never  be  wholly  escaped,  and  while  it 
is  by  no  means  inconsiderable,  yet  it  is  reduced  to 
a  minimum  when  that  currency  is  circulating  as 
money  throughout  the  entire  country,  and  be- 
sides, the  cost  then  is  so  distributed  as  to  be  in- 
appreciable at  any  one  place  or  by  any  particular 
person  or  class.  Both  economy  and  mercantile 
convenience,  therefore,  indicate  that  each  com- 
munity should  hold  as  part  of  its  ordinary  circu- 
lating medium  whatever  metallic  money  is  needed 
as  a  reserve  for  the  demands  of  its  foreign  trade. 

Another  consideration  is  important.  Suppose 
having  $600,000,000  in  gold  we  have  to  export 
$10,000,000;  that  contracts  the  circulation  $10,- 
000,000.  But  if  we  held  only  $200,000,000  in  gold, 
and  it  was  all  in  the  Treasury  as  a  basis  for  a 
greenback  or  bank  circulation  of  $600,000,000, 
then  the  export  of  $10,000,000  in  gold  would  con- 
tract the  circulation  $30,000,000,  because  for  every 
dollar  withdrawn  from  the  coin  basis  of  such  cir- 
culation, three  dollars  must  be  got  out  of  circula- 
tion in  one  way  or  another,  or  else  the  propor- 
tion of  reserve  to  outstanding  notes  is  disturbed. 
For  this  reason,  during  the  days  of  State  banks 
of  issue,  every  important  demand  for  specie  for 
export  produced  a  spasm  throughout  the  whole 
internal  trade  of  the  country,  and  if  shipments 
continued,  suspension  and  depreciation  followed, 
because  it  was  impossible  to  retire  circulation 
with  a  celerity  three  or  four  times  that  of  the  gold 
movement.  The  book-credit  system,  to  which  the 


198  THE  PEOPLE'S  MONEY 

English  have  been  compelled  to  resort  by  the  Pro- 
crustean Bank  Act  of  1844,  is  even  more  sensitive 
than  our  old  State  bank  system  used  to  be  to  gold 
exports  and  imports,  and  even  until  to-day  the 
whole  commercial  and  industrial  machinery  of 
Great  Britain  is  accelerated  or  retarded  by  the 
influx  or  efflux  of  gold  at  the  Bank  of  England. 

There  is  no  inconsistency  between  what  is  here 
said  and  what  was  said  in  the  preceding  chapter 
about  the  economy  and  efficiency  of  a  bank-note 
circulation.  The  observations  in  the  present 
chapter  apply  to  a  government  currency  like 
that  of  our  greenbacks,  the  reserve  for  which  is 
held  wholly  in  the  Treasury,  whence  it  may  be 
drawn  in  large  blocks  for  export,  and  before  1862 
the  chief  stock  of  gold  was  held  in  New  York  and 
at  other  seaports,  where  it  was  handy  for  export, 
whereas  the  preceding  chapter  describes  a  totally 
different  state  of  things,  such  as  would  exist  if  the 
whole  greenback  circulation  of  $346,000,000  were 
withdrawn  and  the  banks  were  set  free  to  supply 
paper  money  for  the  country,  under  proper  regula- 
tion as  to  reserve  and  redemption.  There  are 
about  six  thousand  of  these  institutions  dispersed 
all  over  our  territory,  and  if  each  of  these  were 
compelled  to  hold  a  specie  reserve  against  its  cir- 
culation, and  a  currency  reserve,  as  now,  against 
its  deposits,  the  necessary  stock  of  gold  would  be 
so  distributed  and  so  strongly  held  as  to  be  prac- 
tically beyond  the  reach  of  influences  tending  to 
its  serious  depletion  by  export. 


CHAPTEE  XVII. 

THE  VOLUME  OF  MONEY 

Much  controversy  exists  as  to  what  volume  of 
money  should  be  maintained  in  the  United  States, 
and  conflicting  theories  on  this  subject  compete 
for  practical  application  through  the  coinage  and 
currency  laws.  It  is  important  for  Congress  to 
decide  rightly  among  these  theories,  because,  of 
course,  there  can  be  only  one  true  theory,  and  if 
that  one  is  not  selected  as  the  basis  of  legislation, 
harm  rather  than  good  will  result.  These  theories 
have  not  been  formulated  with  scientific  precision ; 
if  they  were,  perhaps,  some  of  them  would  not  have 
so  many  adherents,  but  each  has  been  tacitly  ac- 
cepted by  some  among  those  who  favor  the  legis- 
lative measures  which  are  the  logical  expression  of 
the  principles  the  theories  severally  set  forth.  The 
first,  and  apparently  the  most  popular  theory,  is 
what  may  be  called  "  the  per  capita  requirement," 
which  is,  in  effect,  that  the  volume  of  money  in  the 
country  should  increase  in  some  sort  of  propor- 
tion to  the  increase  in  the  total  number  of  inhab- 
itants. 


200  THE  PEOPLE'S  MONEY 

In  considering  this  theory  the  first  inquiry 
must  be  whether  there  is  really,  or  can  be,  any 
relation  between  the  number  of  people  in  the 
country  and  the  number  or  the  money  amount  of 
coins  and  notes  existing  at  any  particular  time ; 
because,  of  course,  the  whole  theory  of  a  per  cap- 
ita requirement  of  currency  depends  upon  there 
being  such  a  relation.  If  any  argument  exists  in 
support  of  this  postulate,  I  have  not  seen  it.  In 
the  debates  in  Congress  those  who  favored  the 
silver  legislation  of  the  last  twelve  years  used  to 
cite  certain  figures  as  to  the  per  capita  supply  of 
money  in  different  countries  as  evidence  that 
there  should  be  more  currency  in  the  United 
States,  and  it  may  be  that  these  figures  are  con- 
sidered as  supplying  an  argument  of  that  charac- 
ter, but  they  do  not  even  show  any  constant  rela- 
tion between  currency  and  population  anywhere ; 
on  the  contrary,  they  indicate  considerable  diver- 
sity in  this  respect  among  the  countries  selected, 
and  if  we  add  the  figures  for  Great  Britain  and 
Ireland,  which  ordinarily  are  omitted  from  the 
tables  in  the  Congressional  Record,  we  shall  find 
the  diversity  still  greater. 

It  seems  useless  to  reproduce  here  the  various 
tables  referred  to ;  some  of  them  are  now  out  of 
date,  but  the  following  table  contains  all  the  facts 
pertinent  to  the  inquiry  in  hand.  It  has  been 
compiled  in  the  United  States  Mint  Bureau,  and 
includes  the  latest  returns  of  population  and  cir- 
culation in  the  countries  named : 


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rH  ^  «0  S  S  OJ  <ffl  O  O  O  »2  00  O  rH  *  |2  5*  5»  3>  rH  §  3  £      .  g  § 

5553 

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O 

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202  THE  PEOPLE'S  MONEY 

If,  as  appears  from  this  table,  no  uniform  pro- 
portion of  currency  to  population  exists  as  to 
countries,  does  any  exist  as  to  lesser  communi- 
ties, say  our  States,  counties,  cities,  and  towns, 
or  the  cities  or  provinces  of  the  European  coun- 
tries referred  to  ?  Do  we  find  anywhere  the  coins 
or  the  total  currency  in  any  community  distrib- 
uted among  individuals  equally  or  among  house- 
holds, according  to  the  number  of  their  respective 
members  ?  The  experience  and  the  common-sense 
of  every  reader  may  be  appealed  to  in  derision  of 
the  notion  that  the  number  of  people  in  a  house,  a 
town,  a  State,  or  the  whole  country,  has  anything 
to  do  with  the  total  volume  of  the  money  held  or 
required  in  each  of  these  communities. 

But  if  it  were  otherwise,  if  it  could  be  shown, 
as  it  cannot  be,  that  the  industries  of  France,  for 
example,  are  more  prosperous  than  those  of  the 
United  States  because  the  French  have  more 
money  per  capita  than  we  have,  while  those  of 
Great  Britain  are  less  prosperous  because  there 
the  per  capita  supply  of  currency  is  less  than  it  is 
in  the  United  States,  it  still  would  be  necessary  to 
the  argument  in  favor  of  government  issues  here 
to  prove  that  in  France  there  is  some  power  or 
authority  superior  to  our  government  in  financial 
sagacity  which  has  provided  such  a  supply  of 
currency,  an  assumption  fatal  to  the  agitation  for 
government  action  here,  because  neither  in  France 
nor  in  any  other  country  having  more  currency 
per  capita  than  we  have,  has  any  government  at 


THE   VOLUME  OF  MONEY  203 

any  time  undertaken  to  regulate  the  supply  of 
money ;  while  in  every  European  country  in  which 
the  per  capita  circulation  exceeds  that  of  the  United 
States  the  present  tendency  is  toward  reduced 
supply  through  the  suspension  of  silver  coinage. 
The  disparity  shown  in  the  tables  simply  proves 
that  everywhere  but  here  governments  accept  the 
doctrine  which  requires  them  to  refrain  from  med- 
dling in  commercial  adjustments,  and  especially  to 
refrain  from  any  attempt  to  increase  or  diminish 
the  volume  of  money  by  administrative  measures 
or  by  legislative  enactment. 

Another  theory  is,  that  the  volume  of  currency 
should  increase  with  increased  wealth,  and  while 
no  statistics  have  been  adduced,  this  seems  a  rea- 
sonable conjecture  if  hazarded  as  to  what  is  likely 
to  happen  under  conditions  unfettered  by  legisla- 
tion and  undisturbed  by  government  interference. 
This  is  indeed  the  true  doctrine  on  this  subject, 
as  may  easily  be  substantiated  without  going 
abroad,  by  examining  those  facts  which  are  famil- 
iar to  all,  however  meagre  may  have  been  their  ex- 
perience. 

The  trouble  with  most  writers  and  statesmen  is, 
that  they  look  at  these  matters  wholly  in  a  gen- 
eral far-off  way  and  take  no  note  of  what  passes 
daily  before  their  eyes.  Now  the  facts  connected 
with  currency  distribution  and  movements  over 
great  areas  and  among  large  populations  are  diffi- 
cult of  discovery  and  impossible  of  precise  ascer- 
tainment, because  of  the  incessant  mobility  of 


204  THE  PEOPLE'S  MONEY 

money ;  while  on  the  other  hand,  facts  as  to  the 
normal  movement  of  coins  and  notes  in  any  par- 
ticular locality  are  readily  obtainable,  and  these 
facts  are  not  only  sufficient  for  our  purpose,  but 
they  are  the  only  facts  that  can  be  relied  upon, 
both  as  to  authenticity  and  pertinence.  These 
facts  establish  the  principle  that  the  office  and 
function  of  money  is  to  pass  from  hand  to  hand, 
and  a  corollary  deduced  therefrom  is  that,  except 
while  actually  so  passing,  coins  and  notes  are,  as 
far  as  their  effect  goes,  not  money  at  all ;  they  are 
equivalent  to  bullion,  unsigned  bank  or  Treasury 
notes,  or  anything  else  convertible  into  money 
without  change  of  substance. 

Whatever  money,  therefore,  is  hoarded,  what- 
ever is  held  up  in  banks,  whatever  is  otherwise 
out  of  circulation,  constitutes  reserve  of  material 
available  for  circulation,  but  it  is  not  a  part  of  the 
active  circulation,  hence  the  tables  above  referred 
to  are  misleading,  because  in  interpreting  them  it 
is  generally  assumed  that  all  the  money  in  each 
country  is  in  circulation,  whereas  it  is  never  all  in 
circulation,  and  no  one  knows  how  much  of  it  is 
circulating  at  any  particular  time  of  day  or  night. 

In  order  to  examine  the  subject  somewhat  defi- 
nitely, let  us  define  active  circulation  as  money 
that  changes  hands  at  least  once  a  day.  The  mo- 
ment we  get  down  to  this  plane  of  practical  obser- 
vation, we  remember  that  a  great  deal  of  money  is 
constantly  lying  unhandled,  while  also  we  think 
of  cases  where  the  same  money  changes  hands 


THE  VOLUME  OF  MONEY  205 

many  times  a  day,  and  it  at  once  becomes  mani- 
fest that  what  is  unused  should  not  count,  and 
that  the  effective  force  of  what  is  used  is  greatly 
increased  by  repetition  of  employment.  One  dol- 
lar that  changes  hands  ten  times  a  day  does  the 
duty  of  ten  dollars  in  liquidating  debt,  effecting 
exchanges,  and  measuring  values,  which  are  the 
only  uses  of  dollars  as  money;  but  the  dollars 
resting  in  some  man's  pocket,  or  till,  or  safe,  are 
functionless.* 

Now  any  theory  of  money  distribution  or  cur- 
rency supply  must  be  defective  that  does  not  take 
account  of  the  increased  effectiveness  of  money, 
by  reason  of  repetition  of  employment,  and  also 
of  the  proportion  between  active  circulation  and 
reserve  which  obtains  in  different  communities. 
These  two  principles  are  really  what  control  the 
quantity  of  money  required  in  any  community,  at 
any  given  time,  and  because  these  vary  inces- 
santly and  independently,  while  the  population  is 
nearly  constant  numerically,  it  is  impossible  for 
the  per  capita  requirement  theory  to  have  any 

*  These  dollars  are  property  ;  they  have  value  ;  the  time  will 
come  when  they  will  resume  activity,  but  meanwhile,  as  long  as 
they  rest  in  pocket,  till,  or  vault  they  are  unprofitable  property, 
yielding  no  revenue  performing  no  service  ;  nor  is  money  thus 
idle  merely  unprofitable,  it  is  an  expense,  and  at  the  great  finan- 
cial centres,  where  money  is  handled  in  blocks  large  enough  to 
make  the  expense  appreciable,  it  is  lent  from  day  to  day  at 
merely  nominal  rates,  so  as  to  mitigate  this  expense.  Each  man 
tries  to  shift  upon  another  the  burden  of  idle  money,  each  bank, 
each  community,  each  country  makes  the  same  effort. 


206  THE  PEOPLE'S  MONEY 

foundation  in  reason,  or  to  find  any  support  from 
facts. 

Legislation,  therefore,  influenced  in  any  degree 
by  efforts  to  apply  this  theory,  is  misguided  and 
likely  to  prove  injurious.  To  illustrate  this  view 
of  the  subject,  money  may  be  compared  to  the 
rolling-stock  of  a  railroad.  Money  is  an  instru- 
ment of  exchange  through  the  transportation  of 
value ;  railroad  cars  are  instruments  of  exchange 
through  the  transportation  of  commodities;  both 
classes  of  instruments  are  useful  only  when  per- 
forming their  respective  functions ;  at  other  times, 
without  losing  value,  they  are  an  encumbrance 
and  an  expense.  The  number  of  dollars  or  ve- 
hicles at  any  time  in  use  depends  upon  the  volume 
of  business  to  be  accommodated ;  a  railroad  sub- 
ject to  extreme  variations  in  the  volume  of  traffic 
must  either  maintain  during  dull  periods  a  con- 
siderable number  of  idle  cars  and  locomotives,  or 
else  in  times  of  activity  it  must  be  able  to  hire 
what  it  lacks ;  so  merchants  and  communities  sub- 
ject to  variations  in  the  volume  of  their  business 
must  either  keep  idle  money  of  their  own  during 
the  dull  periods,  or  they  must  hire  enough  to  sup- 
ply their  needs  during  periods  of  activity. 

A  railroad  that  has  the  same  amount  and  kind 
of  traffic  both  ways  every  day,  all  the  year  round, 
works  at  the  minimum  of  expense  in  rolling-stock, 
because  it  is  able  to  adjust  the  number  of  loco- 
motives and  cars  to  its  needs,  and  to  get  the  max- 
imum of  work  out  of  every  locomotive  and  car  it 


THE  VOLUME   OF  MONEY  207 

owns  by  keeping  them  all  incessantly  going,  while 
another  road,  of  the  same  length,  may  be  at  much 
greater  expense,  because  it  has  all  its  heavy  traffic 
one  way,  and  occurring  in  spurts  at  irregular  inter- 
vals. Now  what  railroad  manager  would  disregard 
these  considerations  and  fix  the  number  and  capa- 
city of  the  locomotives  and  cars  for  each  road  by 
the  length  of  its  track,  or  in  proportion  to  the 
population  of  the  country  through  which  it  runs  °? 

In  the  same  way  one  community  using  about 
the  same  amount  of  currency  every  day  needs  to 
keep  on  hand  only  that  precise  amount,  because 
every  coin  and  note  is  in  constant  use,  while  in 
another  community  of  the  same  size  opposite  con- 
ditions may  prevail.  What,  then,  becomes  of  the 
principle  of  per  capita  distribution  ?  Manifestly 
the  best  thing  for  railroads  generally  is  that  each 
company  should  be  free  and  able  to  adjust  the 
number  of  its  locomotives  and  cars  to  its  average 
needs,  to  hire  out  its  idle  stock  when  its  own  traffic 
is  dull,  to  hire  from  its  neighbors  in  times  of  ac- 
tivity. Now  upon  reflection  it  will  appear  that 
four  things  are  necessary  in  order  that  a  railroad 
should  be  able  to  conduct  its  business  in  that 
way ;  these  are : 

1st.  That  there  are  other  railroads  near  by  man- 
aged on  the  same  principle. 

2d.  That  the  number  and  mutual  independence 
of  these  should  be  sufficient  to  afford  a  guarantee 
against  combinations  to  make  a  "corner"  in  roll- 
ing-stock at  a  critical  moment, 


208  THE  PEOPLE'S  MONEY 

3d.  That  the  group  of  railroads  thus  inter- 
changing should  be  so  circumstanced  as  to  render 
it  more  or  less  certain  that  no  excessive  proportion 
of  them  will  reach  their  periods  of  maximum  need 
simultaneously. 

This  requirement  will  be  more  or  less  fully  com- 
plied with  in  proportion  as  the  area  covered  by 
the  interchanging  roads  is  extended,  and  also  in 
proportion  as  the  nature  of  their  traffic  is  diversi- 
fied. 

4th.  That  these  roads  should  have  their  tracks 
of  the  same  gauge  and  connecting,  their  locomo- 
tives adapted  to  the  same  fuel,  their  couplings  in- 
teracting, and  all  other  physical  conditions  ad- 
justed to  the  free  use  of  any  vehicle  on  every  road. 

The  manifest  advantages  attending  such  ar- 
rangements have  contributed  to  the  consolidation 
of  distinct  railroads  into  great  systems,  to  the 
union  of  these  systems  in  associations,  and,  a  few 
years  ago,  to  the  change  of  gauge  over  a  large  sec- 
tion of  country.  As  a  further  step  in  the  applica- 
tion of  this  principle  companies  have  been  formed 
expressly  to  build  cars  and  hire  them  out.* 

Now  within  fifty  years  our  railroads  have  mar- 
vellously increased. in  number  and  extension;  this 
whole  system  of  car-interchanging  has  come  into 

*  The  relation  of  these  companies  toward  the  railroads  is  the 
same  as  that  of  banks  and  other  lenders  of  money  toward  mer- 
chants and  others  who  have  to  use  money,  while  the  relation  of 
different  railroads  to  each  other  as  hirers  of  cars  is  like  the  rela- 
tion between  different  communities  under  which  money  is  trans- 
ferred from  one  to  another  through  operations  in  exchange. 


THE  VOLUME  OF  MONEY  209 

existence  and  attained  proportions  but  little  ap- 
preciated by  the  general  public,  and  although  pro- 
ducers and  consumers  of  every  sort  and  every- 
where are  vitally  dependent  upon  the  uninter- 
rupted use  of  the  facilities  of  transportation  they 
afford,  there  is  among  the  people  absolute  confi- 
dence that  the  managers  of  these  roads  can  and 
will  provide  cars  and  locomotives  enough  for  all 
purposes.  No  one  has  dreamed  of  suggesting 
that  the  supply  of  these  should  be  proportioned 
to  the  population ;  no  one  has  proposed  that  the 
government  should  build  locomotives  and  cars,  as 
it  was  for  years  coining  silver  dollars  and  is  now 
issuing  coin  notes  against  silver  bullion,  or  that, 
having  built  them,  it  should  store  them  up  in 
order  that  the  railroads  may  be  sure  of  having  an 
adequate  supply. 

If  such  measures  were  adopted  they  would  im- 
mediately disturb  railroad  management  through- 
out the  United  States;  every  workshop  for  the 
manufacture  of  locomotives  and  cars  would  curtail 
its  operations,  stop  the  purchase  of  raw  material, 
of  castings,  fittings,  etc. ;  the  purveyors  of  these 
articles  would  find  their  business  paralyzed,  and, 
after  fifteen  years  of  government  effort  to  increase 
the  supply  of  rolling-stock,  there  would  be  fewer 
locomotives  and  cars  in  the  country  than  if  the 
railroads  had  been  left  alone.  All  the  sources  and 
channels  of  supply  of  the  raw  materials  and  fit- 
tings, except  those  favored  by  the  government, 
would  be  dried  up  ;  all  other  workshops  would  be 
14 


210  THE  PEOPLE'S  MONEY 

idle,  the  skilled  hands  unemployed,  the  capital 
invested  in  buildings  and  machinery  lost. 

Is  this  not  a  striking  likeness  of  the  conse- 
quences of  the  effort  made  by  the  government  to 
increase  the  supply  of  money  in  the  country  by 
first  coining  two  million  dollars'  worth  of  silver 
every  month  and  afterward  buying,  with  notes  is- 
sued for  the  purpose,  4,500,000  ounces  of  silver 
monthly  ?  Are  not  the  banks  surrendering  their 
circulation;  are  not  credits  curtailed;  have  not 
gold  coins,  estimated  to  amount  to  $600,000,000, 
disappeared  entirely  from  ordinary  circulation; 
have  not  greenbacks  become  rare  ?  Who  ever  sees 
or  handles  any  money  now  except  silver  coins,  sil- 
ver certificates,  or  coin  notes?  Statesmen  tell  us 
we  require  vastly  more  than  $1,800,000,000  of  cur- 
rency ;  the  Bland  Law,  which  was  designed  to  in- 
crease the  volume  of  currency  in  circulation,  has 
contracted  it  to  half  that  sum,  and  the  passage  of 
the  law  of  July,  1890,  increasing  the  purchases  of 
silver  to  4,500,000  ounces  per  month,  was  followed 
immediately  by  monetary  stringency. 

But  it  is  not  only  in  the  passage  of  these  laws 
that  the  quantity  theory  of  money  has  found  ex- 
pression in  our  national  legislation.  Nearly  all 
the  laws  relating  to  the  currency,  and  to  the  fiscal 
operations  of  the  government,  passed  within  the 
last  twenty  years,  have  been  more  or  less  shaped 
by  the  theory  that  in  one  way  or  another  the  wel- 
fare of  the  people  could  be  promoted  by  an  in- 
crease in  the  volume  of  that  part  of  the  circulating 


THE  VOLUME  OF  MONEY  211 

medium  which  owes  its  existence  to  governmental 
creation.  That  this  is  a  fallacy  will  clearly  ap- 
pear upon  application  to  money  of  the  principles 
obviously  governing  the  supposed  case  of  Con- 
gress undertaking  to  promote  the  welfare  of  the 
people  interested  in  transportation  by  the  govern- 
mental manufacture  of  freight  cars. 

To  estimate  the  full  effect  of  such  legislation  let 
us  suppose  that  Congress,  in  undertaking  to  build 
some  theoretical  number  of  freight  cars  every 
month,  should  also  enact  a  law  that  the  railroads 
should  charge  freight  by  the  car-load  and  not  by 
the  ton,  and  then  should  order  the  government  cars 
built  to  carry  just  twenty  tons,  because  the  cars  of 
thirty  years  ago  were  of  that  capacity,  or  because 
India,  Mexico,  and  certain  other  countries  are  sat- 
isfied with  such  cars.*  At  first,  of  course,  all  the 
railroads  having  bigger  cars  and  powerful  loco- 
motives, heavy  rails,  ballasted  road-bed,  and  other 
arrangements  and  equipments  to  correspond, 
would  protest ;  but  in  fifteen  years  the  government 
cars  would  have  supplanted  the  others,  the  heavy 
rails  would  have  been  replaced  with  lighter  ones, 
the  expense  of  keeping  up  the  road-bed  would 
have  been  saved,  and  the  people  would  have  been 

*  There  would  be  just  as  much  reason  for  this  as  for  insisting 
that  in  1893  41 2£  grains  of  90  fine  silver  should  carry  a  full  dol- 
lar because  it  did  so  in  1876,  or  because  France  first,  and  the 
Latin  Union  afterward,  held  silver  at  a  stable  value  among  their 
own  people  for  seventy  years,  or  because  the  Mexican  dollar  and 
the  Indian  rupee  have  been  unchanged  in  weight  notwithstand- 
ing their  decline  in  value. 


212  THE  PEOPLE'S  MONEY 

gradually  and  imperceptibly  forced  up  to  paying 
as  much  for  moving  twenty  tons  as  they  used  to 
pay  for  moving  forty,  and  our  railroad  system 
would  be  back  to  where  it  was  thirty  years  ago ; 
the  people  poorer,  and  the  owners  of  railroad 
stock  richer. 

This  is  what  has  happened  after  fifteen  years 
of  the  Bland  Law  and  its  successor,  the  Silver  Act 
of  1890.  At  first  the  bankers  and  capitalists,  hav- 
ing all  their  arrangements  adjusted  to  a  currency 
resting  on  gold  and  amounting  to  $1,800,000,000, 
protested  against  the  law;  but  now  they  have 
adapted  their  arrangements  to  that  law,  and  they 
are  contentedly  absorbing  the  profits  of  the  pres- 
ent and  looking  forward  with  resignation  to  the 
still  greater  profits  that  will  be  forced  upon  them 
when  the  currency  drops  to  the  bullion  value  of 
the  silver  dollar.  But,  since  reasoning  by  analogy 
is  not  always  conclusive,  it  may  be  well  to  look 
upon  this  question  from  another  point  of  view. 

Ordinarily  when  a  man  receives  money  he  puts 
in  bank  or  lays  away  at  home  what  he  expects  to 
spend,  and  invests  the  rest  as  profitably  as  he 
can;  another  who  finds  himself  for  the  moment 
without  the  precise  money  needed  for  a  special 
purpose,  borrows  on  the  best  terms  he  can,  or  else 
he  sells  some  kind  of  property,  or,  lastly,  he  gives 
up  the  contemplated  transaction.  Now  since  com- 
munities, however  populous  or  geographically  ex- 
tended, consist  wholly  of  individuals,  and  since 
all  individuals  are  governed,  in  respect  to  these 


THE  VOLUME  OF  MONEY  213 

matters,  by  the  same  impulses  and  considerations, 
it  follows  that  the  supply  of  currency  in  every 
community  will  be  distributed  at  any  particular 
moment  according,  first,  to  the  relative  desire  of 
different  individuals  to  use  particular  amounts, 
immediately  or  prospectively ;  and,  secondly,  ac- 
cording1 to  the  relative  ability  of  these  individuals 
to  obtain  the  amounts  they  severally  desire. 

The  amount  desired  by  each  man  is  divisible  in- 
to what  he  desires  for  immediate  use,  and  what  he 
thinks  it  expedient  to  keep  in  hand  for  his  future 
needs.  Now  in  every  widely  extended  community 
of  diversified  and  active  industry  the  amount  of 
currency  passing  from  hand  to  hand,  day  by  day, 
under  ordinary  conditions  of  business  and  confi- 
dence, will  be  about  the  same  at  all  times,  but  the 
amount  held  up  by  each  individual  to  meet  future 
requirements  will  vary  greatly  from  time  to  time. 

If  anything  causes  a  large  proportion  of  the 
individuals  in  any  community  to  simultaneously 
accumulate  currency,  each  having  regard  only  to 
his  own  requirements,  immediate  and  future,  the 
aggregate  of  such  withdrawals  from  the  volume  of 
currency  will  reduce  that  portion  available  for  ac- 
tive circulation  below  the  current  needs  in  the 
community,  and  produce  what  is  commonly  called 
"a  scarcity  of  money."  It  is  a  natural  law,  result- 
ing from  the  uniformity  of  human  action  under 
like  conditions,  that  a  general  opinion  that  such  a 
scarcity  is  likely  to  arise  tends  of  itself  to  produce 
that  scarcity,  because  every  man  in  endeavoring1  to 


214:  THE  PEOPLE'S  MONEY 

provide  himself  with,  money  enough  to  tide  over 
the  apprehended  "  squeeze,"  holds  up  all  the  money 
he  can,  and  so  helps  to  precipitate  that  very  condi- 
tion against  which  he  is  endeavoring  to  guard. 

Now  in  spite  of  whatever  efforts  governments 
may  make,  no  community  ever  retains  for  any 
length  of  time  a  greater  volume  of  circulation  than 
will  suffice  for  its  ordinary  needs ;  as  has  been  al- 
ready said,  idle  money  is  an  encumbrance  and  an 
expense,  like  idle  railroad  cars,  and  the  uniformity 
of  human  action  under  like  conditions  leads  each 
man,  each  bank,  each  city,  each  country,  to  shift 
upon  some  other  the  burden  of  superfluous  cur- 
rency. Hence  through  the  export  of  coin,  or  the 
curtailment  of  credits,  or  the  diminished  use  of 
checks,  drafts,  and  notes  (which  ordinarily  consti- 
tute the  largest  part  of  the  active  currency  of  in- 
dustrial communities),  the  total  volume  of  circula- 
tion in  each  community  will  become  adjusted  to 
the  normal  volume  of  its  business,  or  else  the 
volume  of  money  being  beyond  control,  an  equi- 
librium will  be  reached  by  the  expanse  of  specula- 
tion and  an  inflation  in  the  prices  of  speculative  in- 
vestments.* 

There  is,  therefore,  always  a  tendency,  under 
normal  conditions  of  business  and  of  political  and 

*  It  is  undeniable  that  only  speculative  investments  are  raised 
in  price  by  temporary  money  surfeits,  but  the  reaction  invari- 
ably depresses  real  estate  and  commercial  values,  while  the  cur- 
tailment of  credit  incident  to  periods  of  inflation  becomes  aggra- 
vated when  the  fever  of  speculation  subsides. 


THE  VOLUME  OF  MONEY  215 

social  tranquillity,  toward  the  establishment  of 
an  equilibrium  between  the  average  volume  of 
daily  cash  transactions  and  the  volume  of  the  cir- 
culation, including  in  this  term  the  checks,  drafts, 
notes,  and  credits  which  take  the  place  of  "  law- 
ful "  money.  This  being  the  case,  when  an  occa- 
sion arises,  as  above  described,  impelling  a  gen- 
eral resort  to  the  holding  up  of  money,  scarcity 
is  inevitable,  and  as  such  scarcity  always  breeds 
distrust  and  renders  instruments  of  credit  for  the 
time  being  more  or  less  unavailable  as  substitiites 
for  money,  the  exclusion  of  these  from  their  cus- 
tomary office  aggravates  the  effects  of  the  currency 
contraction. 

It  is  evident,  therefore,  that  no  amount  of 
money  emitted  by  the  government  can  avert  pe- 
riods of  scarcity,  and  there  are  those  who  think 
that  the  somewhat  regular  recurrence  of  such  pe- 
riods is  inevitable.  It  is,  however,  equally  evident 
that  the  greater  the  area  covered  by  any  single 
monetary  system,  the  greater  the  number  of  per- 
sons participating  in  the  custody  and  daily  hand- 
ling of  the  circulating  medium,  the  more  diversified 
the  situation,  occupation,  interest,  thoughts,  and 
feelings  of  these  individuals,  the  less  likelihood 
will  there  be  of  any  occurrence  producing  a  un- 
animous and  simultaneous  movement  toward  the 
holding  up  of  money. 

At  the  same  time,  if  all  over  this  area,  through 
the  agency  of  banks  and  the  other  appliances  of 
modern  finance,  a  free  movement  of  money  is 


216  THE  PEOPLE'S  MONEY 

practicable,  from  one  individual  or  bank  or  town 
or  city  or  country  to  another,  a  temporary  in- 
crease of  need  at  one  point  will  generally  be  co- 
incident with  a  temporary  superfluity  at  another, 
and  the  community  as  a  whole  would  keep  as  part 
of  its  normal  volume  of  currency  whatever  amount 
might  be  required  to  be  passed  around  in  this 
way  to  meet  successive  temporary  demands  at  dif- 
ferent localities.  In  this  way  actual  scarcity  would 
be  prevented  to  a  great  extent,  and  the  effect  of  an 
apprehension  of  scarcity  would  be  reduced  to  the 
minimum. 

It  follows  that  periods  of  stringency  are  less 
likely  to  occur  in  proportion  as  the  area  and  pop- 
ulation under  one  monetary  system  become  en- 
larged, and  hence  it  may  be  inferred  that  if  the 
whole  world  were  under  a  uniform  monetary  sys- 
tem, such  occurrences  would  be  reduced  to  the 
minimum,  if  they  were  not  rendered  impossible. 

It  is  plain,  from  this  view  of  the  subject,  that 
while  the  welfare  of  the  people  of  any  given  coun- 
try can  never  be  promoted  by  excessive  emissions 
of  money  by  the  government,  it  may  be  very 
greatly  promoted  by  their  being  brought  into 
such  association  with  the  people  of  other  coun- 
tries that  a  uniform  monetary  system  may  pre- 
vail over  as  great  an  area  as  possible,  their  own 
territory  forming  a  part  of  it.  If  there  is  any  ad- 
vantage, as  the  Fathers  of  our  Republic  believed, 
in  securing  to  all  the  people  of  the  United  States 
a  general  uniform  monetary  system,  instead  of 


THE  VOLUME  OF  MONEY  217 

leaving"  them  as  they  had  been  during  the  colonial 
period,  and  as  they  were  under  the  Confederation, 
subject  to  systems  limited  by  State  boundaries;  if 
we  should  find  it  intolerable  now  to  go  back  to  the 
condition  from  which  our  predecessors  were  res- 
cued by  the  Constitution,  or  even  to  that  prevail- 
ing up  to  1862,  then  manifestly  our  welfare  would 
be  still  more  promoted,  our  monetary  condition 
would  be  still  more  assured,  if  our  sixty-two  mill- 
ions of  people  could  be  brought  into  union  with 
the  people  of  all  other  countries  that  have  attained 
to  our  plane  of  industrial  development,  and  if 
these  united  hundreds  of  millions,  distributed  as 
they  are  so  widely  over  the  globe,  could  all  come 
under  one  uniform  monetary  system. 

The  great  majority  of  people  are  led  to  favor 
the  per  capita  theory  of  money,  not  because  they 
believe  in  it  as  a  theory,  but  because  it  affords 
ground  for  increased  issues  of  money  by  the  gov- 
ernment, and  they  think  that  such  increased  is- 
sues will  promote  prosperity  by  "making  money 
plentiful." 

Let  us  therefore  examine  this  latter  proposi- 
tion. 

It  will  require  few  words  to  prove  that  the  mere 
plentifulness  of  money  in  any  given  place  can  in 
no  way  benefit  any  person.  Thousands  of  people 
who  live  and  labor  in  rural  communities,  where 
money  is  perennially  scarce,  are  better  off  than 
they  possibly  could  be  if  they  should  be  sudden- 
ly removed  to  New  York,  where,  comparatively 


218  THE  PEOPLE'S  MONEY 

speaking,  money  is  always  plentiful.  Again,  take 
two  banks,  side  by  side  in  New  York,  one  a  large 
bank  with  millions  of  money  in  its  vaults  and  an- 
other a  small  bank  with  only  thousands  under  its 
roof.  The  clerks  and  the  porters  and  the  messen- 
gers of  one  are  no  better  off  than  those  of  the 
other;  comparing  them,  man  with  man,  and  ser- 
vice with  service,  certainly  the  hucksters  at  the 
doors  are  not  affected  by  the  wealth  within,  nor 
are  the  customers  better  served  by  the  big  bank 
than  by  the  small  one;  generally  it  is  the  other 
way. 

If  one  tries  to  think  out  the  details  of  any  con- 
ceivable process  by  which  the  mere  plentifulness 
of  money  benefits  any  individual,  he  will  find  that 
he  has  to  suppose  certain  conditions  of  means, 
opportunities,  abilities,  and  purposes,  all  of  which 
must  be  combined  before  such  an  individual  can 
appropriate  any  advantage  to  himself  from  the 
plentifulness  of  money,  and  then  upon  a  close 
analysis  it  will  be  found  that  the  advantage  arises 
out  of  that  combination,  and  not  out  of  the  plenti- 
fulness of  money.  It  is  true  that  plentifulness  of 
money  excites  speculation,  but  speculation  diverts 
both  men  and  capital  from  productive  industrial 
employment,  which  is  a  loss  of  wealth-producing 
force,  and  in  all  speculation  some  lose  what  others 
gain,  while  both  parties  suffer  in  moral  tone.  In 
this  respect,  therefore,  plentifulness  of  money  is  an 
evil,  not  a  blessing. 

The  fundamental  fallacy  of  this  whole  notion, 


THE  VOLUME  OF  MONEY  219 

that  the  government  should  make  money  plenti- 
ful, lurks  probably  in  a  confusion  of  ideas  about 
the  effect  of  an  abundant  supply  of  money.  \\V 
are  all  accustomed  to  connect  abundance  of  supply 
with  cheapness,  and  in  one  sense  this  connection 
applies  to  money,  but  not  in  the  sense  that  is  gen- 
erally assumed.  Money  is  the  only  thing  of  which 
the  dearness  or  cheapness  is  estimated  by  its 
rental  value  expressed  in  a  percentage  of  itself. 
Money  is  said  to  be  dear  or  cheap  according  to  the 
rate  of  interest  demanded  for  its  use ;  while  lands, 
houses,  corn,  or  cotton  are  called  dear  or  cheap 
according  to  the  amount  of  money  paid  for  the 
transfer  of  their  ownership  from  a  seller  to  a 
buyer. 

Bearing  in  mind  this  distinction,  it  is  easily 
seen  that  the  dearness  or  cheapness  of  money 
must  depend  primarily  upon  the  relation  between 
the  supply  of  loanable  funds  and  the  demand  for 
the  use  of  such  funds,  and  it  will  also  appear  that 
the  total  amount  of  currency  existing  in  any  par- 
ticular country  can  only  remotely  affect  the  inces- 
sant variations  of  this  relation  at  numerous  points 
all  over  the  country.  The  term,  loanable  funds,  is 
by  no  means  restricted  to  actual  money.  Nearly 
all  loans  are  made  by  credits  entered  on  the  books 
of  a  bank,  or  by  checks  or  drafts  or  acceptances, 
and  these  pass  into  the  general  clearings  of  the 
community,  of  which  only  the  resulting  balances 
are  settled  in  money,  hence  the  mere  plentifulness 
of  money  is  only  remotely  connected  with  the 


220  THE  PEOPLE'S  MONEY 

supply  of  loanable  funds.  The  state  of  trade,  tlie 
prosperity  of  the  community,  the  degree  of  confi- 
dence in  the  immediate  future,  and  the  general 
state  of  credit,  immediately  and  directly,  influence 
both  lending  and  borrowing.  Whatever  tends  to 
depress  these,  tends  to  raise  the  price  of  money 
by  decreasing  the  supply  of  loans  and  increasing 
the  demand  for  them,  and  vice  versa,  whatever 
tends  to  improve  trade  and  augment  prosper- 
ity, whatever  increases  general  confidence  and 
strengthens  credit,  tends  to  make  money  cheaper 
by  encouraging  lenders  and  rendering  borrowers 
less  eager. 

Now  unnecessary,  unwise,  or  ill-considered  aug- 
mentations in  the  volume  of  the  currency  tend 
to  produce  the  conditions  that  inevitably  make 
money  scarce  and  raise  the  rate  of  interest ;  be- 
cause— 

1st.  They  tend  to  unsettle  values,  and  in  that 
way  to  disturb  trade  adjustments,  which  disturb- 
ance in  turn  impairs  confidence  and  abridges 
credit.  Consequently  lenders  of  money  become 
timid  and  borrowers  become  more  eager,  money 
is  held  out  of  circulation  and  people  say  it  is 
scarce. 

2d.  They  tend  to  excite  speculation,  and  that 
draws  capital  away  from  employment  in  produc- 
tive industries  in  order  that  it  may  be  used  (as  it 
always  can  be  more  profitably)  in  speculative 
operations.  The  capital  thus  withdrawn,  is,  of 
course,  that  which  has  been  heretofore  borrowed 


THE  VOLUME  OF  MONEY  221 

by  the  industrial  producer,  hence  he  must  borrow 
anew  and  at  a  higher  rate,  or  else  curtail  his  oper- 
ations. This  influence  soon  makes  itself  felt 
throughout  the  whole  sphere  of  industrial  pro- 
duction, because  such  production  is  carried  on 
largely  by  means  of  borrowed  capital,  and  its  gen- 
eral effect  is  manifested  in  higher  interest,  reduced 
wages,  smaller  profits,  diminished  production  and 
dearer  goods. 

3d.  A  government  that  assumes  to  itself  the  func- 
tion of  continually  increasing  the  volume  of  money 
never  reaches  a  point  at  which  it  can  stop,  because 
each  augmentation  tends  to  make  money  dearer, 
and  since  the  object  is  to  make  money  cheaper, 
there  will  always  be  a  clamor  to  increase  the  scale 
of  annual  augmentations.  A  government  so  situ- 
ated is  like  a  horse  going  down  hill  in  a  wagon 
without  brakes:  he  must  ever  be  going  faster  and 
faster,  and  yet  at  each  stride  he  augments  the  mo- 
mentum of  the  mass  that  is  pushing  him  to  de- 
struction. 

While  it  is  the  office  and  the  duty  of  governments 
to  so  provide  by  law  that  the  people's  money  may 
be  the  best  possible,  it  must  be  remembered  that 
the  government  does  not  give  money  away  to  indi- 
viduals, or  distribute  it  throughout  the  community ; 
its  whole  duty  is  to  determine  what  shall  be  money 
in  order  that  those  who  can  find  a  market  for  their 
labor,  or  products,  or  property,  may  be  assured  of 
receiving  truly  the  value  they  bargain  for.  The 
demand  for  these  determines  their  value  and  ex- 


222  THE  PEOPLE'S  MONEY 

changeability,  irrespective  of  the  supply  of  money 
in  the  Treasury,  in  the  banks,  or  in  the  community 
at  large.  No  man  can  get  money  until  he  finds  a 
buyer  for  what  he  has  to  sell,  and  buyers  are  not 
simply  those  who  have  money,  but  those  who, 
having  money  or  credit,  have  also  the  need  or 
desire  to  possess  the  particular  things  one  has  to 
sell  and  who  are  able  or  willing  to  pay  the  price 
asked. 

Simply  making  money  plentiful,  therefore,  can- 
not exercise  the  least  influence  to  increase  the  de- 
mand for  any  man's  labor  or  products.  A  trades- 
man may  have  millionaires  passing  his  shop  every 
day  without  selling  them  anything,  while  he  drives 
a  good  trade  with  boot-blacks  and  others  whose 
means  are  limited  and  precarious,  but  who  desire 
the  goods  he  deals  in,  while  the  millionaire  does 
not  want  them.  If  the  money  in  the  pockets 
of  the  passer-by  brings  no  increase  of  trade  to  a 
shop,  how  can  such  increase  come  to  it  because 
of  money  lying  in  bank  or  held  in  the  national 
Treasury  ? 

It  follows  from  this  that  it  is  no  part  of  the  duty 
of  the  government,  in  providing  money  for  its 
people,  to  attempt  to  create  supplies  of  money  to 
any  amount,  arbitrarily  or  hypothetically  deter- 
mined upon  in  advance.  The  laws  can  and  should 
be  so  framed  as  that  the  quantity  of  money  in  cir- 
culation will  be  determined,  from  day  to  day,  by 
the  demand  for  it.  It  is  the  demand  for  money, 
the  extent  of  the  need  for  its  use,  that  should  reg- 


THE  VOLUME  OF  MONEY  223 

ulate  its  quantity;  this  demand  cannot  be  stimu- 
lated, this  need  cannot  be  extended  by  arbitrarily 
increasing  the  quantity  of  money  in  the  country. 
A  gas  company  cannot  increase  the  demand  for 
light  by  increasing  the  daily  products  of  its  works ; 
,it  may  dishonestly  increase  the  consumption  by 
maintaining  an  unnecessary  pressure — that  is  all ; 
but  such  conduct  inflicts  loss  upon  its  customers, 
and  in  like  manner  a  government  which,  by  the 
operation  of  its  laws,  or  the  administration  of  its 
Treasury,  creates  an  artificial  pressure  of  unem- 
ployed money,  injures  its  people,  the  users  of  its 
money,  just  as  the  users  of  gas  are  injured  by  an 
excessive  pressure  in  the  mains. 

Since  money  performs  its  functions  as  a  medium 
of  exchange  by  passing  from  hand  to  hand,  its  ef- 
fectiveness depends  upon  the  number  of  exchanges 
effected  by  the  same  money  in  a  given  time.  Rapid- 
ity and  smoothness  of  circulation,  not  greatness 
of  volume,  give  effectiveness  to  a  currency ;  for  the 
incessant  variations  in  the  activity  of  trade  are  per- 
fectly and  naturally  accommodated  by  correspond- 
ing self -adjusted  and  delicately  modulated  varia- 
tions in  the  rate  of  circulation,  while  variations  in 
the  volume  of  money  disturb  and  obstruct  trade, 
because  they  not  only  alternately  impede  and  ac- 
celerate the  circulation,  but  they  do  so  artificially 
and  violently.  To  attempt  to  stimulate  trade  and 
so  to  increase  general  prosperity  by  creating  a 
volume  of  money  greater  than  can  be  used  effec- 
tively, is  not  only  futile  but  pernicious,  because  it 


224  THE  PEOPLE'S  MONEY 

inflicts,  either  upon  the  government  or  the  people, 
the  expense  of  carrying  so  much  dead  capital.* 

*  This  reasoning  is  sustained  by  a  striking  historical  instance. 
Spain  and  Portugal  acquired  the  richest  mines  of  gold  and  silver 
in  the  world,  and  established  colonies  in  those  parts  of  America 
having  the  greatest  natural  advantages,  as  evidenced  by  the  fact 
that  there  the  aboriginal  races  had  attained  to  the  greatest  degree 
of  wealth.  Up  to  that  time  both  Spain  and  Portugal  had  been 
great  commercial  nations,  and  Spain  had  been  powerful  in  a  mili- 
tary and  naval  way.  These  countries  drew  all  the  silver  and  gold 
they  could  from  their  colonies,  coined  it  into  money,  and  then 
kept  it,  or  tried-  to  keep  it,  all  within  their  own  territories,  by  at 
one  time  prohibiting  its  export  under  severe  penalties,  and  at 
another  laying  a  heavy  export  duty  upon  it. 

In  consequence  of  thus  gorging  themselves  with  money,  even 
though  it  was  all  pure  silver  and  gold,  and  got  out  of  the  Mexi- 
cans and  Peruvians  without  giving  an  equivalent,  both  these  two 
countries  began  at  once  to  decline  in  commercial  importance  as 
well  as  in  military  power,  manufactures,  and  agriculture,  while 
even  in  civilization  they  have  lagged  behind  the  age. 

This  consequence  need  not  seem  surprising  when  it  is  remem- 
bered that  every  dollar  in  money  is  a  dollar  idle  ;  that  every  man 
who  gives  labor,  or  land,  or  machinery,  or  good  security  that  bears 
interest,  in  exchange  for  money,  and  keeps  that  money,  has  ex- 
changed productive  capital  for  dead  capital. 

The  Government  of  Spain  in  forcing  its  people  to  keep  the  im- 
mense value  of  their  gold  and  silver  in  money  instead  of  leaving 
them  free  to  trade  that  money  off  for  productive  investments, 
burdened  them  with  just  so  much  dead  capital,  which  cost,  to 
carry  it,  all  that  the  productive  capital  of  the  country  could  earn. 


CHAPTEE 

VALUE 


Up  to  this  point  we  have  busied  ourselves  en- 
tirely with  money  as  a  fact,  tracing  its  origin,  its 
development,  and  its  functions,  as  they  are  re- 
vealed by  history  and  observation,  and  examining 
its  basis  in  natural  law,  in  industry,  and  in  stat- 
ute law.  We  have  seen  that  every  form  of  money 
depends  for  its  circulation  upon  public  confidence, 
and  for  its  effectiveness  upon  the  definiteness  and 
stability  of  its  value.  It  has  been  shown  that 
wherever  several  kinds  of  money  are  to  circulate 
indiscriminately,  they  must  be  co-ordinated  and 
unified  in  function  by  being  predicated  upon  a 
single  monetary  unit,  and  that  there  is  no  other 
way  of  effecting  this  result. 

The  material  and  forms  of  money,  and  the  vari- 
ous substitutes  for  money  were  next  investigated  ; 
the  subject  of  legal  tender  was  treated  ;  the  prin- 
ciples of  a  due-bill  circulation  were  examined  and 
applied;  the  term  "  balance  of  trade"  was  ex- 
plained ;  and,  finally,  an  inquiry  was  made  as  to 
the  principles  governing  variations  in  the  volume 
of  circulation.  So  far,  therefore,  we  have  been 
dealing  with  concrete  matters  only  ;  now  it  is  nec- 
15 


226  THE  PEOPLE'S  MONEY 

essary  to  take  up  the  subject  of  value.  Yalue  is 
an  abstract  term  expressing  a  relation.  It  is  not  a 
thing"  perceptible  by  the  senses  ;  indeed,  it  does 
not  exist  at  all  in  the  objects  said  to  possess  it,  but 
is  imputed  to  them  by  human  intelligence.  Value, 
therefore,  is  not  a  quality  of  objects,  but  only  an 
attribute  with  which  they  become  invested. 

Value  is  very  different  from  utility,  though 
utility  is  generally,  but  not  always,  the  basis  of 
value.  In  ordinary  speech  the  two  words  are 
often  used  indiscriminately,  which  is  a  constant 
source  of  confusion  of  ideas  as  to  the  true  nature 
of  value.  Utility  is  a  physical  relation,  whereas 
value  is  an  abstract  relation.  Brute  animals  have 
a  perception  of  utility;  they  have  no  conception 
of  value.  There  are  utilities  in  the  animal  and 
vegetable  kingdoms  that  exist  independently  of 
mankind;  but  value  is  a  purely  human  concep- 
tion. Value  may  be  primarily  and  generically  de- 
fined as  the  relation  between  human  desire  and 
proximate  objects  of  human  pursuit.  Those 
things  with  which  nature  supplies  us  gratui- 
tously are  not  objects  of  pursuit,  and  therefore 
they  are  not  invested  with  value ;  those  things 
which  being  desired  can  be  attained  only  by  exer- 
tion, by  sacrifice,  or  in  exchange  for  things  al- 
ready belonging  to  us  are  invested  with  value. 

It  is  obvious,  therefore,  that  it  cannot  be  any 
special  quality  in  the  thing  desired  which  gives 
value  to  it,  but  that  the  value  comes  wholly  from 
unsatisfied  desire.  It  is  true  this  desire  is  excited 


VALUE  227 

by  our  knowledge  of  the  qualities  of  the  thing, 
and  by  our  opinion  that  those  qualities  render  the 
thing  desirable;  but  this  knowledge  and  this 
opinion  are  in  our  minds,  they  are  not  in  the 
thing,  and  it  is  in  our  minds  that  they  excite  the 
desire  to  possess  the  thing ;  they  render  it  an  ob- 
ject of  pursuit,  and  establish  between  it  and  the 
desire  that  craves  it  that  relation  which  we  call 
value.  Yalue  being  a  relation,  it  must  vary  by 
degrees,  not  by  quantities ;  and  degrees  of  value, 
since  value  is  the  correlative  of  desire,  must  vary 
with  the  intensity  of  the  desires  to  which  they  are 
related.  But  since  value  attaches  only  to  that 
which,  though  desired,  is  as  yet  withheld  from 
our  possession,  then  value  must  vary  also  with 
the  resistance  to  appropriation. 

We  have  now  two  opposite  influences  simultane- 
ously operating  to  control  the  variations  of  value : 
one  in  the  man,  viz.,  the  intensity  of  his  desire  to 
possess  a  certain  thing ;  the  other  in  his  environ- 
ment, viz.,  the  obstacles  to  his  attainment  of  the 
object  of  that  desire.  Let  us  see  whether  these 
influences  can  be  measured  and  compared.  Sup- 
pose a  man  desires  several  things,  and  is  uncer- 
tain which  one  of  them  he  desires  most.  If  he  is 
a  civilized  man,  he  quickly  solves  the  problem  by 
considering  which  he  is  willing  to  give  the  most 
money  for;  if  he  is  an  uncivilized  man,  he  also 
soon  determines  which  he  is  willing  to  make  the 
most  exertion  to  obtain.  We  may,  therefore, 
measure  the  intensity  of  such  desires  by  money  or 


228  THE  PEOPLE'S  MONEY 

else  by  human  exertion,  say  by  hours  or  days  of 
labor  or  of  pursuit.  On  the  other  hand,  the  same 
modes  of  measurement  are  applicable  to  the  re- 
sistance to  be  overcome  in  obtaining  possession 
of  different  objects  of  pursuit;  under  civilization, 
cost,  outside  of  civilization,  intensity  and  duration 
of  exertion,  measure  the  obstacles  to  appropriat- 
ing any  desired  object.  Yalue,  therefore,  is  meas- 
ured by  money  or  by  human  exertion  during  cer- 
tain intervals  of  time.  Whatever  men  will  pay 
for,  work  for,  or  fight  for,  is  a  thing  possessing 
the  attribute  of  value,  and  the  degree  of  value  in 
each  case  is  determined  wholly  by  the  amount  of 
money  or  of  effort  that  the  thing  will  command, 
and  not  at  all  by  the  nature  of  the  thing  itself. 
But,  it  will  be  said,  things  already  possessed  have 
value.  This  is  true,  for  their  possession  by  one 
man  is  an  obstacle  to  their  appropriation  by 
others ;  but  it  is  only  the  desire  of  others  to  ap- 
propriate them  that  gives  them  value  when  in 
the  hands  of  their  possessor.  In  this  reasoning 
care  must  be  taken  not  to  confuse  value  with  util- 
ity, and  also  to  distinguish  between  actual  and 
potential  value.  A  thing  may  be  indispensably 
useful  to  me ;  but  if  nobody  else  is  ever  likely  to 
want  it,  it  is  destitute  of  value.*  If,  under  certain 
possible  contingencies,  others  may  come  to  desire 
it,  then  it  has  potential  value. 

*  A  false  tooth,  a  glass  eye,  a  glove  contrived  to  disguise  the 
mutilation  or  deformity  of  the  hand,  are  illustrations  of  useful 
objects  that  have  no  value  when  once  possessed. 


VALUE  229 

Let  us  illustrate  this.  A  and  B  wear  glasses  of 
the  same  grade,  and  are  dependent  upon  them.  In 
company  with  a  number  of  persons  not  needing 
glasses  they  go  out  for  several  days'  excursion  on 
the  plains.  There  they  meet  a  pedler  who  has 
for  sale  one  pair  of  spectacles  of  the  grade  they 
use.  A  and  B  having  glasses  already,  and  the 
rest  of  the  party  not  needing  them  at  all,  the  ped- 
ler's  spectacles  have  no  actual  value,  i.e.,  no  value 
at  that  time  and  place.  The  pedler,  however, 
knows  that  sooner  or  later  he  will  meet  some  one 
who  does  want  these  spectacles,  and,  therefore, 
they  have  to  him  potential  value.  But  A  and  B 
are  both  upset  out  of  the  wagon  at  the  same  time, 
and  their  glasses  are  smashed.  Suddenly  the 
pedler's  single  pair  of  spectacles  acquire  actual 
value,  not  through  any  change  in  them,  but  in  con- 
sequence of  the  desire  of  A  and  B  to  possess 
them.  Their  utility  is  precisely  what  it  was  be- 
fore, but  owing  to  circumstances  they  have  passed 
from  the  condition  of  valuelessness  to  that  of 
value  in  the  estimation  of  A  and  B,  while  in  the 
estimation  of  the  pedler  they  have  passed  from 
the  condition  of  potential  to  that  of  actual  value, 
and  the  degree  of  their  value  has  been  greatly  en- 
hanced. If  A  alone  or  B  alone  wanted  the  spec- 
tacles, or  if  only  one  of  the  two  could  afford  to 
buy  them,  their  value  would  be  the  point  of  prac- 
tical adjustment  between  the  intensity  of  desire 
for  them  on  the  part  of  that  one  and  the  intensity 
of  the  pedler's  desire  to  make  a  large  profit ;  but 


230  THE  PEOPLE'S  MONEY 

when  both  A  and  B  compete  for  the  spectacles, 
the  original  obstacle  to  their  appropriation  by 
either,  viz.,  the  pedler's  estimate  of  their  poten- 
tial value,  becomes  increased  by  the  intensity  of 
the  desire  for  them  by  the  other.  Supposing  the 
pedler  to  offer  the  spectacles  at  auction,  their 
value  would  then  be  determined  by  the  willing- 
ness or  the  ability  of  one  or  the  other  of  these  two 
competitors  to  outbid  the  other. 

This  illustration  is  drawn  from  an  exceptional 
case,  but  it  is  necessary  in  all  analyses  to  elimi- 
nate conditions  foreign  to  the  precise  matter  to  be 
determined  in  order  to  obtain  definite  and  positive 
results.  Here  the  transaction  has  been  insulated 
so  as  to  show  that  value  is  not  a  quality,  but  an  at- 
tribute as  respects  the  thing  said  to  possess  value, 
and  that  it  is  also  a  relation  between  that  thing 
and  the  desire  of  one  or  more  persons  either  to  re- 
tain or  to  acquire  it.  Beyond  this,  the  object  is 
to  show  that  as  an  attribute  only,  value  is  poten- 
tial, indefinite,  undetermined,  conditional,  and  that 
it  only  becomes  actual,  definite,  and  determined 
when  it  is  conditioned,  and  has  assumed  the  aspect 
of  a  relation  between  the  thing  desired  and  one  or 
more  persons  desiring  it. 

A  relation  between  terms  constant  in  respect  to 
their  nature,  can  vary  only  in  degrees  correspond- 
ing with  the  possible  degrees  of  variations  in  the 
quality  or  force  (i.e.,  the  "  quantity  "  )  of  either  or 
both  of  such  terms.  The  force  of  gravitation  pro- 
duces relations  somewhat  like  those  expressed  by 


VALUE  231 

the  term  "value."  We  are  accustomed  to  speak 
of  the  weight  of  bodies  as  we  speak  of  the  value 
of  commodities,  but  weight  is  not  a  quality  of  such 
bodies;  it  is  merely  an  attribute  expressive  of  a 
relation  between  the  earth's  mass  and  any  other 
mass  suspended  ponderably  within  reach  of  the 
earth's  attraction.  The  terms  of  this  relation  are 
the  earth,  and  any  one  or  more  ponderable  bodies, 
and  the  relation  between  them  varies  in  degrees 
corresponding  with  the  mass  and  density  of  either 
term  modified  by  their  distance  apart ;  hence  dif- 
ferences in  weight  are  measured  in  degrees.  In 
most  instances  where  gravity  comes  into  play,  the 
earth's  attraction  is  regarded  as  a  constant  quan- 
tity ;  hence  the  general  rule  is  to  consider  the  de- 
grees of  this  attraction  as  varying  with  the  mass 
and  density  of  particular  bodies;  but  the  varia- 
tions of  the  barometer  at  different  altitudes,  the 
variations  of  tides  consequent  upon  a  modification 
of  the  earth's  attraction  by  that  of  the  sun  and 
the  moon,  are  familiar  instances  of  a  variation 
of  weight  arising  out  of  a  variation  of  the  earth's 
spacial  relation  to  the  body,  the  mass  and  density 
of  the  body  being  constant. 

Now,  ordinarily,  value  varies  according  to  de- 
mand and  supply,  as  the  phrase  goes,  and  ordi- 
narily demand  is  assumed  to  be  as  constant  as  the 
earth's  mass  is,  while  supply,  being  visibly  vari- 
able, is  represented  by  the  mass  and  density  of 
the  lesser  body.  If,  in  the  illustration  employed 
above,  the  pedler  had  had  two  pairs  of  spectacles, 


232  THE  PEOPLE'S  MONEY 

the  demand  and  supply  would  have  stood  at  their 
normal  equation,  the  spectacles  would  have  shown 
their  true  weight  in  value,  so  to  speak ;  but  when- 
ever and  wherever  there  are  two  or  more  buyers 
to  only  one  commodity,  there  is  a  monopoly, 
which  produces  a  disturbance  of  the  normal  equa- 
tion of  value  as  determined  by  the  world's  demand 
and  supply.  If  there  had  been  two  pedlers,  each 
with  a  pair  of  spectacles  for  sale,  with  no  occasion 
for  combination,  and  A  and  B  had  dealt  with 
them  separately,  this  normal  condition  of  things 
would  have  been  maintained,  and  the  spectacles 
could  have  been  bought  at  what  is  called  a  fair 
price,  viz.,  cost  to  the  seller,  with  a  reasonable  and 
just  profit  added. 

Now,  let  us  go  back  to  physical  relations  for  fur- 
ther analogies.  While  all  matter  is  subject  to  the 
force  of  gravity,  and  under  ordinary  conditions 
that  is  a  constant  force,  certain  substances  are  sub- 
ject to  other  forces  which,  because  they  tend  to 
modify  the  influence  of  gravity,  are  habitually 
measured  by  the  degrees  in  which  they  effect  such 
modification.  Motion  is  one  of  these  forces ;  mag- 
netism is  another.  Motion,  like  weight,  is  not  a 
quality ;  neither,  however,  is  it  an  attribute,  as 
weight  and  value  are.  It  is  simply  a  condition  or 
state  of  being  expressive  of  a  series  of  progressive 
relations  between  the  object  in  motion  and  def- 
inite points  in  time  and  space.  Magnetism,  finally 
(as  far  as  science  yet  knows),  is  simply  a  relation — 
a  relation  to  which  such  forms  of  value  as  that 


VALUE  233 

attributed  to  precious  stones  and  objects  of  art 
come  nearer  in  analogy  than  anything  else  in  the 
world  of  physics. 

These  analogies  may  help  us  to  understand  how 
value,  in  its  generic  sense,  covers  several  kinds  of 
relations,  for  it  may  be  the  product  of  one  or  more 
of  several  forces,  corresponding  severally  with  the 
force  of  gravity,  the  force  of  motion  and  the  force 
of  magnetism.  As  weight  is  the  relation  between 
the  earth's  mass  and  any  body  suspended  ponder- 
ably  within  the  scope  of  the  earth's  attraction,  so 
value,  in  a  general  sense,  is  the  relation  between 
the  world's  demand  and  any  commodity  suspended 
commercially  within  the  scope  of  the  world's  at- 
tainment. Again,  as  motion  is  a  relation  between, 
on  the  one  hand,  the  body  moving,  and,  on  the 
other  hand,  definite  points  in  time  and  space,  so 
"  value  in  exchange "  (money  or  its  equivalents) 
is  the  relation  between  the  commodities  serving  as 
money,  on  the  one  hand,  and  definite  standards  or 
fixed  points  of  value,  on  the  other.  Finally,  as 
magnetism  is  a  simple  relation  of  elective  affin- 
ity, so  the  intrinsic  value  of  precious  stones  and 
objects  of  art  seems  to  express  that  intensity  of 
desire  which  distinguishes  the  pursuit  of  gratifica- 
tions from  the  pursuit  of  objects  of  mere  utility.* 

*  To  illustrate  this  characteristic  of  human  nature,  it  is  neces- 
sary only  to  observe  how  men  risk  their  lives  for  honor  or  for 
gain,  how  they  squander  health  and  wealth  in  passionate  ex- 
cesses; how,  finally,  while  believing  the  doctrine  of  eternal 
damnation,  they  consciously  devote  their  souls  forever  to  the 
fires  of  Hell,  for  the  sake  of  slaking,  for  a  moment,  a  thirst  for 
sensual  gratification. 


234  THE  PEOPLE'S  MONEY 

% 

If  the  doctrine  of  value  as  here  laid  down  is  now 
clearly  apprehended,  we  may  proceed  to  apply  it 
to  the  subject  of  money.  Money  has  been  defined 
as  value  in  exchange ;  its  physical  analogue  is 
matter  in  motion.  Now,  motion  is  a  force,  as 
gravity  is ;  but  motion  is  a  dynamic  force ;  gravity 
is  a  static  force.  If  we  conceive  of  value  as  a  rela- 
tion produced  by  forces  in  action,  we  see  its  source 
in,  first,  the  forces  which  impel  men  to  the  pursuit 
of  objects  to  which  they  attribute  value,  and  sec- 
ondly, those  which  lead  them  to  hold  possession 
of  valuable  things  already  acquired ;  and  regard- 
ing the  first  as  dynamic,  and  the  second  as  static, 
we  may  express  the  preponderance  of  the  one  or 
the  other  in  any  relation  by  the  same  terms,  i.e., 
we  may  distinguish  between  static  value  and  dyna- 
mic value,  meaning  respectively  value  at  rest  and 
value  in  action.  In  the  light  of  this  conception,  it 
may  clarify  our  views  of  money  to  regard  it  as  a 
value  in  action.  It  does  exhibit  some  of  the  char- 
acteristics of  force.  It  is  a  debt-paying  force  un- 
der statute  law ;  a  labor-compelling  force,  and  a 
purchasing  force  under  industrial  laws.  Now> 
forces  to  be  utilized  must  be  measured,  and  their 
measurement  is  expressed  in  degrees  of  force, 
while  the  mode  or  scale  of  measurement  depends 
upon  a  fixed  standard.  As  far  as  this  analogy  can 
lead  to  any  conclusion  (but  of  course  there  is  no 
such  thing  as  demonstration  by  analogy),  the  con- 
clusion to  which  it  leads  is  that  established  by 
previous  reasoning,  viz.,  that  money  to  be  useful, 


VALUE  235 

even  as  a  debt-paying  force,  must  be  permanently 
related  to  some  fixed  standard  of  value. 

There  is,  however,  an  application  of  the  doctrine 
of  value,  which  just  at  the  point  now  reached  in 
our  inquiry  is  more  important  than  the  conception 
of  it  as  a  relation  between  forces.  Commerce  deals 
in  commodities ;  finance  deals  in  values.  Com- 
modities are  things  classified  according  to  their 
substance,  their  utility  and  their  distribution ; 
values  are  things  classified  according  to  their 
value,  without  regard  to  substance,  utility,  or  dis- 
tribution. Commerce  seeks  to  satisfy  demand  by 
means,  of  supply,  but  its  sole  method  is  the  inter- 
change of  commodities — it  can  have  no  other 
method.  Finance  facilitates  commerce  by  adjust- 
ing inequalities  of  value  arising  out  of  such  inter- 
changes ;  it  supplies  to  modern  trade  the  same  ad- 
junct that  money  supplied  to  primitive  barter ;  it 
settles  balances,  as  money  originally  supplied  the 
"boot,"—"  evened  the  trade." 

Eegarded  as  a  whole,  commerce  is  really  reduci- 
ble to  a  complicated  system  of  barter,  of  which 
finance  is  employed  in  keeping  an  account.  The 
commodities  exchanged  in  bulk  by  commerce  are 
here  measured  by  value,  regardless  of  their  sub- 
tance.  Every  invoice  is  represented  by  a  bill  of 
lading  describing  its  substance  (commercial  force) 
and  a  bill  of  exchange  specifying  its  value  (finan- 
cial force).  Bankers  deal  in  these,  and  when  bal- 
ances arise  between  individuals,  cities,  sections,  or 
countries,  bankers  (who  are  merchants  of  money) 


236  THE  PEOPLE'S  MONEY 

transfer  the  "  boot "  that  "  evens  the  trade."  The 
balance  of  trade  is  the  residue  of  indebtedness  on 
one  side  or  on  the  other,  after  particular  balances 
are  offset  or  cancelled.  Banks  perform  this  office* 
for  individual  traders,  cities,  and  sections  ;  clearing 
houses  perform  it  for  banks ;  the  body  of  foreign 
bankers  perform  it  for  the  foreign  commerce  of  the 
country  considered  as  a  whole. 

This  explanation  must  render  it  clear  that  with 
all  the  wonderful  expansion  of  industry  and  com- 
plication of  trade  which  distinguish  our  times,  the 
rudimentary  forms  still  survive,  the  products  of 
industry  are  still  interchanged  by  processes  which, 
when  these  products  are  reduced  to  their  common 
denominator,  value,  are  seen  to  be  but  barter  am- 
plified and  grown  intricate,  as  all  the  interlacing 
ramifications  of  the  oak  are  developed  from  the 
bourgeoning  of  the  sapling.  This  being  the  case, 
it  follows  that  the  principles  of  barter,  of  simple 
trade,  must  apply  to  all  commercial  and  financial 
operations ;  that  the  ciphers  which  in  notation 
distinguish  1,000,000  from  1,  merely  change  the 
degree  of  whatever  force  the  integer  possesses — 
1,000,000  dollars  is  simply  one  dollar  raised  to  the 
millionth  power,  as  a  million  bushels  of  wheat 
means  one  bushel  repeated  a  million  times.  This 
is  of  importance  because  men  speculating  on  finan- 
cial matters  are  generally  lifted  above  the  solid 
ground  of  reason  and  fact  by  the  efforts  they  make 
to  climb  what  seem  mountains  in  the  clouds,  when 
*  Of  keeping  accounts  and  settling  balances. 


VALUE  237 

they  are  really  only  the  magnified  and  distorted 
simulacra  of  palpable  and  every-day  experiences. 
The  commerce  of  the  country,  though  expressed  in 
hundreds  of  millions  of  dollars,  is  made  up  wholly 
of  transactions  conducted  by  individuals;  all  of 
these  are  reducible,  as  we  have  seen,  to  a  common 
denominator,  value  ;  hence  in  the  aggregate  they 
are  subject  to  the  laws  and  influences  that  apply 
to  each  separate  transaction,  and  to  none  others. 
The  practical  conclusions  that  follow  this  view  are 
of  immense  importance  to  all  who  desire  to  under- 
stand financial  matters,  for  they  supply  the  key  to 
all  the  seeming  mysteries  of  trade,  both  foreign 
and  domestic,  and  to  all  the  problems  in  banking 
and  in  national  finance. 

Value  is  the  product  of  the  opposite  forces  of 
demand  and  supply.  Money  is  the  conventional 
standard  for  measuring  value.  Commerce  in  ex- 
changing commodities  also  effects  an  exchange  of 
values,  and  finance  adjusts  and  settles  the  balances 
arising  in  these  exchanges. 


CHAPTEE  XIX. 

THE  STANDAED  OF  VALUE 

Ephron  the  Hittite,  dwelling  among  the  children 
of  Heth,  owned  a  field  which  Abraham,  who  had 
come  to  Hebron  to  bury  Sarah,  his  wife,  desired  to 
buy  for  a  sepulchre.  Ephron  pressed  it  upon  him 
as  a  gift ;  Abraham  insisted  upon  paying  "  the  full 
money  it  is  worth."  Whereupon  Ephron  said, 
"The  land  is  worth  400  shekels  of  silver."  We  do 
not  know  upon  what  ground  Ephron  spoke  so  de- 
cidedly as  to  the  money  value  of  his  field;  and 
we  may  well  believe  that  Abraham's  affliction  put 
bargaining  out  of  the  question  on  both  sides ;  but 
it  is  important  to  have  this  unique  bit  of  evidence 
as  to  the  definiteness  and  precision  of  the  price 
of  land  so  long  ago.  Whether  the  value  of  land 
in  Hebron  determined  the  value  of  silver  there, 
whether  the  value  of  silver  throughout  Asia  Minor 
was  at  that  time  so  well  established  as  to  make  it  a 
familiar  standard  of  value  for  all  other  things,  or 
whether,  lastly,  there  was  some  standard  of  value 
besides  these,  by  which  both  land  and  silver  were 
gauged,  are  questions  which  history  does  not  solve, 
and  upon  which  the  Scripture  narrative  throws  no 
light. 


THE  STANDAKD  OF  VALUE  239 

It  is  not  surprising  that  this  point  is  in  doubt, 
for  still,  after  3,700  years  of  buying  and  selling, 
hiring,  borrowing,  trafficking,  in  every  quarter  of 
the  globe,  even  now,  when  trade  covers  immense 
areas  and  is  conducted  under  much  stress  of  com- 
petition, we  are  ourselves  at  issue  both  as  to  what  is 
and  as  to  what  should  be  the  ultimate  standard  of 
value.  We  feel  as  much  confidence  as  Ephron  ex- 
pressed as  to  the  money  our  property  is  worth  ;  we 
pay  liberally  to  have  quotations  flashed  from  a 
thousand  markets,  that  we  may  follow  prices  into 
minute  fractions,  and  be  sure  what  particular  hun- 
dredth of  a  cent  stood  between  buyers  and  sellers 
of  wheat,  cotton,  or  securities  at  the  end  of  a  day's 
bargaining.  The  funded  debt  of  the  civilized  world, 
amounting  probably  to*  $40,000,000,000,  is  predi- 
cated upon  "  value  received  "  and  agreed  to  be  paid 
in  like  value ;  yet  statesmen,  financiers,  and  econo- 
mists have  been  for  a  hundred  years  debating  what 
is  the  standard  of  value,  and  are  to-day  undecided 
whether  the  labor  that  produces  values  is  also  the 
basis  of  their  measurement,  or  whether  values  and 
labor,  too,  are  measured  by  gold  and  silver.f  In 
recent  years  another  question  has  arisen,  viz., 

*  W.  L.  Fawcett:  "Gold  and  Debt,"  p.  122.  S.  S.  Griggs  & 
Co.,  Chicago.  1887. 

f  The  discussion  as  to  labor  and  value  finds  its  parallel  in  Mr. 
Froude's  story  of  the  owl  which  meditated  incessantly  upon  the 
problem  whether  there  was  first  an  owl  and  then  an  egg,  or  first 
an  egg  and  then  an  owl.  The  wise  bird  shuddered  with  dismay 
at  the  suggestion  that  the  problem  might  some  day  be  solved. 
u  What,  then,  should  we  have  to  meditate  upon  ?  "  he  cries. 


240  THE  PEOPLE'S  MONEY 

whether  gold  alone  should  or  should  not  be  made 
by  law  the  sole  standard  of  value. 

Some  readers  may  wonder  whether  it  is  really  of 
any  practical  importance  to  have  a  standard  of 
value  at  all,  since  the  world  seems  to  have  got  on 
without  it  for  nearly  forty  centuries,  but  it  is  not 
said  that  the  world  has  been  without  standards  of 
value,  only  that  we  to-day  are  not  agreed  as  to  what 
is  the  standard  now.  There  must  always  be  a 
standard  of  value  of  some  sort  in  the  mind  of 
every  man  who  estimates  the  worth  of  a  thing; 
consciously,  or  unconsciously,  he  must  arrive  at 
his  estimate  by  a  process  of  comparison  with 
other  values,  and  as  trade  involves  appraisement 
of  values  by  both  seller  and  buyer,  all  traders 
are  accustomed  to  effect  such  appraisements 
by  using  a  mental  value -scale.  These  mental 
value-scales  are  constructed  by  observation  and 
experience  as  to  current  prices;  hence  they  are 
marked  off  in  the  money  denominations  most  fa- 
miliar to  each  person.  The  degrees  of  our  scales 
are  dollars,  dimes,  and  cents,  and  multiples  or 
fractions  of  these ;  inhabitants  of  Great  Britain  and 
Ireland  have  their  mental  value -scales  marked  in 
pounds,  shillings,  and  pence ;  the  French  use  francs 
and  centimes;  the  Germans,  marks,  etc.  The 
money  legalized  by  these  countries  is  the  standard 
of  value  recognized  in  the  value-scales  of  its  inhabi- 
tants, and  if  there  were  no  communication,  no  com- 
merce among  and  between  the  nations  using  these 
different  value-scales,  there  would  be  no  need  of 


THE   STANDAKD  OF  VALUE  241 

any  standard  of  value  common  to  all,  for  such  a 
standard  is  required  only  to  serve  as  a  medium  for 
comparing  these  different  value-scales  and  con- 
structing tables  of  their  correspondences;  such 
comparison  being  essential  in  order  that  commerce 
may  effect  industrial  exchanges  among  these  na- 
tions. 

The  existence  of  trade  creates  the  need  of  a  stand- 
ard of  value,  and  since  trade  at  the  present  day  is 
world- wide,  there  is  now  a  necessity,  not  existing 
even  a  hundred  years  ago,  for  a  world-wide  stand- 
ard of  value.  The  primary  idea  of  a  standard  in- 
volves its  successive  application  to  and  comparison 
with  the  things  to  be  measured,  i.e.,  those  of  which 
the  weight,  volume,  or  dimensions  are  to  be  deter- 
mined, while  its  secondary  force,  that  which  distin- 
guishes the  standard  from  other  implements  of 
measurement,  implies  its  employment  exclusively 
to  determine  and  to  vouch  the  accuracy  of  such  im- 
plements which,  when  proved  accurate,  represent 
the  standard  and  may  be  used  in  place  of  it. 
These  two  meanings  of  the  word  arise  out  of  and 
therefore  follow,  necessarily,  the  ordinary  conduct 
of  men.  Millions  of  us  buy  and  sell  things  by 
yards  and  pounds,  bushels  and  gallons,  and  are 
content  with  the  implements  kept  in  the  shop  or 
those  sold  to  us  for  use  at  home.  We  assume  that 
they  are  correct,  and  make  them  the  standards  for 
all  our  measurements ; — without  recalling,  even 
if  we  know,  that  the  laws  require  implements  of 
measurement  to  conform  to  certain  standards  care- 
16 


242  THE  PEOPLE'S  MONEY 

fully  and  accurately  constructed,  which  are  kept 
under  lock  and  key  at  the  National  Museum  at 
Washington. 

So  it  is  with  our  value-scales;  we  use  dollars, 
etc.,  as  measures  of  value,  without  reflecting  that 
their  usefulness  for  this  purpose  depends  wholly 
upon  their  correspondence  with  the  standard  of 
value  fixed  by  law,  just  as  the  usefulness  of  foot 
rules,  quart  measures,  and  pound  weights  depend 
upon  their  conformity  with  the  legal  standard  of 
dimension  and  weight. 

We  have  seen  how  in  each  country  the  monetary 
unit  serves  as  a  standard  by  which  local  money  is 
maintained  at  uniform  value,  so  that  any  of  it  may 
serve  as  a  measure  of  value  in  the  daily  traffic  of 
the  people ;  and  it  has  just  been  shown  that  the 
same  principle  requires  that  all  nations  that  trade 
together  must  have  a  standard  of  value  common 
to  all.  Under  primitive  social  and  industrial  con- 
ditions the  money  in  use  is  the  sole  standard  of 
value.  The  idea  of  representative  value,  the  use  of 
instruments  of  credit  as  vehicles  of  value,  belong 
to  modern  times  and  to  advanced  social  and  indus- 
trial development.  Hence  in  ancient  times  and 
even  now  in  countries  only  partially  developed  we 
find  that  the  intrinsic  value  of  the  coined  metal  in 
circulation  is  the  only  standard  of  value,  while  in 
every  highly  developed  country  there  are  many 
forms  of  money  in  circulation  having  no  intrinsic 
value  and  owing  the  stability  of  their  money-force, 
the  uniformity  of  their  purchasing  power,  wholly 


THE  STANDAKD  OF  VALUE  243 

to  the  relations  they  bear  to  a  standard  of  value 
apart  from  themselves.  Every  standard  of  value 
is  useful  in  proportion  to  the  extent  of  the  com- 
munity which  has  adopted  and  recognized  it.  It 
is  possible  to  adopt  standards  of  value  which 
answer,  as  well  as  one  of  the  precious  metals 
would,  the  purposes  of  a  limited  community. 

The  colonial  history  of  the  United  States  af- 
fords several  instances  of  other  substances  besides 
metals  serving  for  a  number  of  years  as  money  in 
the  isolated  communities  of  those  times  ;  but  as 
areas  of  inter-communication  became  extended, 
and  as  the  facilities  of  travel  and  transportation 
became  improved,  the  conditions  which  alone  un- 
derlie such  use  of  an  exceptional  substance  are 
found  to  be  too  unequally  distributed  to  sustain 
their  general  adoption  as  a  standard  of  value.  It 
has  been  found,  therefore,  in  all  communities  cover- 
ing a  considerable  area  and  developing  a  high  de- 
gree of  industrial  and  commercial  activity,  that  no 
standard  of  value  remains  permanently  in  use  ex- 
cept it  be  one  of  the  precious  metals. 

It  has  been  established  in  Chapter  XVI.  of  this 
treatise,  that  whatever  settles  balances  at  any  focus 
of  exchanges  is  alone  competent  to  serve  all  the 
purposes  of  money  throughout  the  area  traversed 
by  the  transactions  settled  at  that  focus ;  hence, 
so  far  as  the  purely  commercial  aspect  of  the 
question  is  concerned,  it  would  appear  that  all 
countries  able  to  do  so  should  make  their  mone- 
tary unit  of  gold,  because  gold  alone  settles  bal- 


244  THE  PEOPLE'S  MONEY 

ances  in  London,  which,  being  at  the  focus  of  the 
world's  exchanges,  is  the  world's  clearing-house. 
It  is  idle  for  us  in  the  United  States  or  for  any 
other  nation  or  set  of  nations  to  rebel  against  this 
requirement  of  commerce,  because  resistance  is 
futile. 

No  particular  nation  or  people  can  separate  it- 
self from  others  in  respect  to  the  medium  for 
settling  international  balances,  except  under  the 
penalty  of  commercial  inferiority,  if  not  isola- 
tion; for  the  condition  of  commercial  fellowship 
among  civilized  nations  is  that  each  shall  conform 
to  the  general  practice  of  all.  This  principle  as- 
serts itself  whenever  communities,  nations,  races 
or  still  greater  aggregations  of  men  are  animated 
by  a  common  purpose  or  seek  an  end  desired  by 
all.  The  world  fixes  its  own  standards  of  govern- 
ment, statesmanship,  jurisprudence,  art,  morality, 
military  strategy,  oratory,  manners  and  customs. 
These  have  varied  from  age  to  age,  and  while 
many  nations,  cities,  and  individuals  have  doubt- 
less participated  in  the  choice  and  changes  of 
type,  yet  in  each  age  and  on  each  line  of  social 
development  some  one  people,  some  one  city, 
even  occasionally  some  individual,  has  been  in- 
vested with  the  prestige  of  being  the  organ  of  the 
age  for  formulating  and  practically  establishing 
the  results  of  a  prevailing  tendency,  and  for  sup- 
plying and  preserving  the  type  which  best  em- 
bodied those  results. 

In  the  course  of  time  Nineveh,  Babylon,  Thebes, 


THE  STANDAED  OF  VALUE  245 

Athens,  Eome,  Constantinople,  Paris,  London,  have 
given  law  and  have  set  fashions  for  the  contempo- 
raneous world,  and  this  is  solely  because  social 
forces  always  centre  somewhere,  and  among  the 
chief  cities  of  each  epoch  that  one  becomes  the 
world's  centre  which  happens  to  stand  nearest  to 
the  objective  point  of  whatever  social  tendency  is 
paramount  among  all  such  tendencies  most  widely 
prevailing  at  the  time.  War,  religion,  literature, 
art,  manners,  commerce,  and  finance,  have  had  by 
turns,  eras  of  supremacy  among  the  objects  of  gen- 
eral human  interest;  each  has  made  some  great 
city  the  seat  of  its  empire,  and  each  has  been  ad- 
vanced toward  perfection  by  thus  attracting  to  it- 
self the  concentrated  efforts  of  mankind,  and  sup- 
plying a  theatre  for  observation,  comparison,  and 
rivalry.  In  our  age,  finance  rules  the  world,  and 
London  is  its  throne  ;  finance  holds  supreme  sway 
over  values ;  hence  its  empire  includes  every  man, 
woman,  and  child  on  the  face  of  the  earth  who  is 
engaged  in  industry  or  who  is  remotely  dependent 
upon  those  so  engaged,  because  industry  must  be 
ever  producing  values,  and  it  is  ever  dependent 
upon  finance  for  effecting  the  exchanges  by  which 
alone  its  products  are  distributed  and  its  produc- 
tive forces  nourished.  Lombard  Street  is  the  focus 
of  those  exchanges,  and  whatever  measures  values 
in  Lombard  Street  must  necessarily  determine  and 
control  values  wherever  industry  plies  the  plough, 
the  pick,  the  hammer,  the  shuttle,  or  the  yard- 
stick. 


24:6  THE  PEOPLE'S  MONEY 

Whether  we  consent  or  not,  therefore,  whether 
we  approve  or  not,  as  long  as  the  world  has  Lom- 
bard Street  for  its  clearing-house,  just  so  long  must 
we  conform  to  the  standard  of  value  there.  It 
would  seem  to  be  as  difficult  to  change  the  finan- 
cial centre  of  the  world  as  to  change  the  location 
of  the  magnetic  pole,  and  even  a  change  of  centre 
would  not  change  the  standard,  if,  as  seems  to  be 
the  case,  that  standard  is  the  product  of  natural 
forces  of  world-wide  effectiveness.  The  magnetic 
pole  might  be  changed,  but  magnetism  would  re- 
main unchanged. 

The  fact  that  London  is  to-day  measuring  values 
in  gold,  although  values  were  once  measured  there 
in  silver,  suggests  an  inquiry  as  to  whether  for- 
merly silver  and  now  gold  are  ultimate  standards, 
or  whether  these  are  merely  implements  of  value- 
measurement  based  upon  and  conformed  to  some 
higher,  broader,  and  more  permanent  standard,  as 
the  French  standards  or  units  of  physical  measure- 
ment are  based  upon  geometrical  data. 

This  opens  up  the  question  as  to  what  is  the 
true  scientific  standard  of  value.  Since  value  is 
not  a  physical  quality  of  objects,  like  extension 
and  weight,  but  is  a  relation  between  certain 
things  to  which  men  attribute  value,  and  the 
human  beings  whose  needs  and  desires  lead  them 
to  attribute  value  to  those  particular  things,  a 
scientifically  adequate  standard  of  values  must  be 
something  that  can  be  always  and  everywhere 
used  with  uniform  precision  for  measuring  and 


THE  STANDARD  OF  VALUE  247 

comparing1  different  degrees  of  that  relation.  In 
seeking  for  such  a  standard,  let  us  begin  by  in- 
quiring what  is  the  actual  notion  that  underlies 
and  sustains  men's  ideas  of  proportional  values. 
In  civilized  countries  money  serves  this  purpose, 
and  beyond  the  pale  of  civilization  degrees  of  value 
are  determined  by  differences  in  the  risk  of  life  or 
limb,  or  in  the  expenditure  of  vital  energy  which 
men  are  willing  to  incur  in  order  to  keep  or  to 
acquire  that  which  they  value. 

We  have,  therefore,  as  natural  standards  of 
value,  three  classes  of  objects :  human  life,  human 
labor  and  money,  which  last,  to  avoid  an  apparent 
petitio  principii,  may  be  merged  into  its  generic, 
property.  One  of  these  classes  must  include  some 
object  fitted  to  be  the  standard  of  value,  and  no  ob- 
ject will  serve  that  purpose  unless  it  fulfils  the 
oecumenical  conditions,  Semper,  ubique,  ab  omnibus; 
that  is,  it  must  "always,  everywhere,  and  by  all 
men  "  have  been  regarded  as  of  prime  value.  Evi- 
dently, if  such  values  exist,  it  is  among  them  that 
we  will  find  the  standard  we  want.  Human  life 
naturally  suggests  itself  as  the  highest  of  all  nat- 
ural values.  Satan  is  reported  in  the  book  of  Job 
as  saying,  "  All  that  a  man  hath  will  he  give  for 
his  life."  And  the  saying  suits  its  author,  who  is 
ever  leading  men  astray  by  half-truths.  If  the 
saying  is  true  as  to  some  men,  it  is  not  true  as  to 
all,  because  there  have  always  been  and  are  still 
great  numbers  of  men  in  every  community  ready 
to  lay  down  their  lives  in  defence  of  their  prop- 


248  THE  PEOPLE'S  MONEY 

erty,*  while  many  a  miser,  when  ill,  denies  himself 
nourishment  and  medical  relief,  so  that  he  dies, 
when  he  might  prolong  life  by  parting  with  a 
minute  fraction  of  his  treasures.  If  we  consider 
the  relative  estimation  in  which  men  hold  wealth 
and  the  lives  of  human  beings  remote  from  them, 
we  shall  find  that  human  life  in  general  is  far  less 
esteemed  than  wealth.  Men  and  even  women  have 
been  known  to  sacrifice  the  happiness  or  health, 
and  even  to  imperil  the  lives,  of  their  parents  and 
their  children,  in  order  to  preserve  their  wealth, 
and  sometimes  merely  to  increase  it. 

It  appears,  therefore,  that  while  among  men 
generally  the  greater  number,  perhaps,  are  so  con- 
stituted that  each  holds  his  own  life  dearer  than 
his  property,  yet  even  among  these  each,  esteems 
his  own  property  as  dearer  to  him  than  the  life  of 
another  man,  or  even  than  the  lives  of  numbers  of 
other  men;  hence  we  must  concede  that  human 
life,  on  the  whole,  is  valued  below  property  on  the 
whole.  Even  if  this  were  not  so,  human  life  could 
not  serve  as  a  standard  of  value,  because  there  is 
no  way  of  measuring  values  by  lives,  since  we  can- 
not barter  lives  experimentally,  and  since  also 
there  is  no  identity  or  equality  of  value  between 
any  two  lives.  Each  man  values  his  own  higher 
than  any  number  of  lives  in  which  he  feels  no 
interest,  and  he  values  the  lives  of  others  accord- 

*  If  this  were  not  so,  burglars  would  thrive  better,  who  habit- 
ually risk  their  lives,  not  to  defend  their  own  property,  but  to  ap- 
propriate that  of  others. 


THE  STANDARD  OF  VALUE  249 

ing  to  his  interest  in  them  severally;  whereas  a 
standard  of  value  must  be  similarly  esteemed  by 
all  men. 

Quite  a  system  of  political  economy  has  been 
constructed  upon  the  dictum  that  human  labor  is 
the  ultimate  standard  by  which  all  values  are 
determined.  This  is  an  attractive  notion,  and  is 
convenient  for  demagogues ;  but  it  is  not  true,  and 
it  would  be  unfortunate  if  it  were  true,  because 
there  is  no  possible  way  of  either  denning  the 
value  of  human  labor  in  the  abstract,  or  of  apply- 
ing human  labor  in  the  concrete,  as  a  standard  for 
measuring  other  values — say,  for  example,  that  of 
wheat.  If  one  inquires  how  much  human  labor  it 
takes  to  produce  a  bushel  of  wheat,  any  practical 
farmer  will  reply  that  it  depends  upon  geographi- 
cal location,  soil,  climate,  drainage,  the  seed  used, 
the  time  of  planting,  the  machinery  employed  in 
preparing  the  land  and  in  sowing,  reaping,  and 
threshing  the  grain,  the  fertilizers  applied,  the 
character  of  the  season,  and  the  quality  of  the 
labor.  Here  are  a  dozen  distinct,  essentially  dif- 
ferent elements,  all  of  them  variable  through 
many  degrees,  which  must  be  combined  with 
human  labor  in  order  to  produce  wheat  at  all ;  and 
supposing  the  labor  to  be  constant,  the  variations 
in  the  quantity  of  product  possibly  resulting  from 
variations  in  these  elements  are  immeasurable. 
But  human  labor  itself  is  by  no  means  a  constant 
force,  for  it  is  affected  by  precisely  those  qualities, 
physical,  intellectual,  and  moral,  which  distinguish 


250  THE  PEOPLE'S  MONEY 

individuals  from  each  other.  Hardly  any  two  men 
are  alike  in  build,  activity,  muscular  development, 
nerve,  endurance,  intelligence,  ingenuity,  skill,  ex- 
perience, energy,  and  persistence  —  all  qualities 
more  or  less  affecting  the  amount  and  quality  of 
work  that  a  man  can  do  in  a  given  time  ;  and  since 
the  value  of  labor  depends  upon  the  amount  and 
quality  of  the  work  accomplished,  and  upon  the 
time  it  takes  to  do  it,  the  labor  of  different  men 
must  vary  in  value  according  to  the  degree  in 
which  they  severally  possess  these  different  quali- 
ties, and  according  to  the  incentive  to,  and  the 
need  of,  or  the  opportunity  for,  exercise  of  them  in 
the  work  to  be  done.  The  same  man  cannot  count 
upon  doing  as  much  or  doing  it  as  well  one  day 
with  another. 

Even  the  lowest  and  rudest  forms  of  labor  fail  to 
supply  a  basis  for  values,  because  both  the  object 
to  which,  and  the  manner  in  which,  any  amount  of 
labor  is  applied  exercise  an  influence  upon  the 
resulting  product,  and  it  is  not  until  labor  results 
in  some  product  that  the  labor  can  be  gauged  as  to 
value.  It  is  very  different  as  to  horse-power,  a 
mere  conventional  term  for  a  unit  of  force,  which 
is  measured  quite  otherwise  than  by  the  actual 
exertion  of  a  horse.  Human  labor  in  the  abstract 
cannot  be  similarly  conventionalized,  averaged,  as 
it  were,  into  a  certain  modicum  available  as  a  unit 
of  value.  If  anyone  thinks  otherwise,  let  him 
study  Sir  Thomas  Brassey's  observations  as  to  the 
relative  value  of  laborers  classed  as  to  race,  habits, 


THE  STANDARD  OF  VALUE  251 

and  habitation,  and  also  according  to  the  character 
of  the  work  to  be  done. 

But  if  it  were  possible  to  obtain  a  modicum  of 
human  labor  that  could  pass  as  a  conventional 
unit  of  value,  how  could  such  a  unit  be  applied  to 
the  measurement  of  values  generally  ?  The  con- 
ventional unit  of  force  called  one-horse  power 
will  invariably,  at  ordinary  altitudes,  anywhere  in 
the  world,  lift  the  same  weight  so  many  feet  in  a 
second  of  time  ;  but  there  is  no  kind  or  amount  of 
human  labor  that  will  produce,  in  the  same  time 
and  under  like  conditions,  at  Calcutta  what  the 
same  kind  and  amount  produces  in  New  York, 
whether  measured  in  wages  or  in  any  other  way. 
How,  then,  could  any  given  modicum  of  labor  be 
used  in  either  of  these  places  to  measure  the 
value  there  of  the  products  of  the  same  modicum 
of  labor  performed  at  the  other  place  ? 

Again,  if  human  labor  were  the  standard  by 
which  all  values  adjusted  themselves  or  are  adjust- 
ed, then,  certainly,  the  same  man  ought  to  com- 
mand everywhere  identical  value  for  his  labor,  or, 
at  least,  his  labor  ought  to  be  approximately  equal 
in  value  wherever  and  however  employed ;  whereas 
we  know  as  a  fact  that  this  is  not  so,  but  that  the 
direct  contrary  is  true,  viz.,  that  almost  every  man 
can  earn  more  and  do  better  for  himself  in  one 
place,  or  in  one  employment,  than  in  any  other. 
This  truth  is  the  foundation  of  Adam  Smith's  prac- 
tical exposition  of  what  he  termed  the  division  of 
labor ;  it  is  the  keystone  to  the  philosophical  doc- 


252  THE  PEOPLE'S  MONEY 

trine  of  free  trade,  and  it  utterly  excludes  from 
possibility  of  verity  the  theory  that  human  labor 
is  the  ultimate  standard  of  value.* 

The  fact  is  that  in  some  ages  of  the  world  human 
labor  had  no  value  whatever,  and  this  is  the  case 
even  now  in  some  regions,  while  in  those  ages  and 
regions  other  values  existed  and  exist,  f  Labor 
came  to  have  distinct  value  only  after  mankind 
had  progressed  out  of  the  patriarchal  conditions, 
for  before  that  the  man's  labor  was  merged  in  his 
personality,  and  the  benefit  derived  from  it  inured 
to  the  possessor  of  his  person.  If  he  were  the 
head  of  a  house,  his  labor  was  his  own,  so  were 
also  its  fruits  ;  if  he  were  a  minor,  a  dependent,  or 
a  slave,  his  labor  and  its  fruits,  as  well  as  his  per- 
son, belonged  to  the  head  of  the  house. 

At  that  very  time,  however,  men  dealt  in  values ; 
money  was  known  and  used ;  its  functions  were  the 
same  in  the  essential  elements  as  they  are  to-day. 
Ephron's  field  was  worth  400  shekels  of  silver. 
What  human  labor  served  as  a  common  standard 
of  value,  recognized  by  Abraham  and  by  the  chil- 
dren of  Heth  as  well?  Consider  the  nomadic, 
the  predatory,  the  pastoral  tribes  scattered  over 
the  world;  they  have  no  conception  of  the  value 
of  human  labor,  no  means  of  estimating  how  much 
labor  enters  into  the  values  obtained  by  them  in 
fight,  in  trade,  or  by  the  fecundity  of  their  flocks 

*  It  is  surprising  that  Adam  Smith  failed  to  see  this  incon- 
gruity. 

f  See  "In Darkest  Africa,"  H.  M.  Stanley. 


THE   STANDARD  OF  VALUE  253 

and  herds ;  yet  they  have  definite  ideas  of  value, 
both  positive  and  relative.  The  wretched  rem- 
nants of  the  aboriginal  races  of  America  hold  labor 
in  contempt,  though  encompassed  by  a  people  who 
exult  in  it ;  yet  they  understand  values.  It  is  use- 
less to  multiply  arguments ;  the  hypothesis  that 
human  labor  is  or  can  be  made  a  standard  by  which 
to  measure  the  value  of  property,  is  untenable  in 
reason,  is  inconsistent  with  industrial  facts,  and  is 
contradicted  by  our  commonest  experiences.* 
Since  neither  human  life  nor  human  labor  can 

*  The  unphilosophical  assumption  that  labor  is,  or  should  be, 
the  standard  of  value  seems  to  have  had  its  origin  in  the  rec- 
ognition of  labor  as  the  essential  factor  in  the  production  of 
wealth.  Up  to  the  time  of  Adam  Smith,  economists  had  gener- 
ally considered  that  all  value  came  out  of  the  earth,  and  while 
they  recognized  the  usefulness  of  the  various  handicrafts,  and 
were  beginning  to  discern  the  importance  of  machinery  in  the 
production  of  wealth,  they  had  not  formed  a  logical  bridge  be- 
tween the  old  dogmas  and  the  newly  recognized  facts  of  political 
economy. 

Smith  discovered  and  established  the  doctrine  of  labor-value 
in  utilizing  the  forces  of  nature  ;  he  revealed  to  his  generation 
the  immortal  truth  that  the  ploughman  is  more  productive  than 
the  soil,  the  reaper  of  more  importance  than  standing  corn, 
that  the  fisherman  and  not  the  sea  supplies  the  market  with  fish, 
and  that  it  is  the  delver  and  not  the  mine  that  gives  us  coal  and 
metals  for  use. 

Naturally  and  pardonably,  he  magnified  the  offspring  of  his 
genius.  Labor  being  the  creator  of  value,  why  should  it  not  also 
be  its  gauge  and  standard  ?  He  assumes  this  hastily,  and  evi- 
dently never  saw  the  inconsistency  between  that  assumption  and 
his  magnificent  demonstration  of  the  doctrine  which  he  called 
"  the  division  of  labor.'* 

Now,  to  deny  that  human  labor  is  a  practicable  standard  of 
value  is  not  to  belittle,  but  to  exalt,  the  function  of  labor  in  the 


254  THE  PEOPLE'S  MONEY 

be  used  as  a  standard  of  value,  we  must  look  for 
that  standard  among  the  various  forms  of  prop- 
erty, and  especially  among  the  substances  to  which 
mankind  has  everywhere  and  always  attributed 
the  highest  value  as  objects  both  of  possession 
and  of  pursuit.  The  standard  we  are  seeking 
must  be  among  these,  because  being  held  in  nearly 
the  same  degree  of  estimation  by  all  men,  they 
are  the  most  constant  objects  of  that  relation  be- 
tween human  desire  and  external  matter  which 
is  expressed  by  the  term  value;  one  of  these, 
therefore,  can  alone  fulfil  the  conditions  essential 
to  a  standard  of  value. 

Now,  when  we  consult  history,  we  find  that  there 
is  not  only  one  such  substance,  but  there  are  many ; 
they  are  comprised  within  two  classes,  precious 
stones  and  precious  metals.  It  is  characteristic  of 
precious  stones  that  each  is  a  gem,  complete  in 

production  of  wealth.  Surely  that  which  creates  is  greater  than 
that  which  measures.  And  where  shall  we  find,  either  in  the 
economy  of  nature  or  in  the  practice  of  mankind,  any  precedent 
for  assuming  that  the  force  that  produces  can  be  made  to 
measure  the  product  ?  There  is  no  proportion  between  the  oak 
and  the  acorn  from  which  it  sprang  ;  the  mariner  does  not  com- 
pute the  progress  of  his  ship  by  the  velocity  of  the  wind  that 
fills  its  sails  ;  nor  does  the  machinist  use  the  expansive  force  of 
steam  as  the  unit  for  measuring  the  stroke  of  the  trip-hammer. 

The  military  force  that  held  Thermopylae  would  have  been 
swept  away  by  a  Galling  gun.  Should  we  take  that  as  a  stand- 
ard for  measuring  the  effect  of  the  defence  upon  the  whole  course 
of  European  history  ?  or  is  it  conceivable  that  there  is  any  possi- 
ble basis  for  comparative  commensuration,  by  military,  moral, 
or  ethnic  force,  between  the  effects  of  our  Revolutionary  War 
and  those  of  the  tremendous  Franco-Teutonic  struggle  ? 


THE  STANDARD  OF  VALUE  255 

itself — individual,  single,  inviolate.  Each  gem  has 
to  be  valued  singly,  according  to  its  individual 
properties  and  defects ;  and  different  kinds  of 
gems,  even  individual  specimens  of  the  same  kind, 
are  variously  estimated  by  men  of  various  tastes ; 
hence,  while  as  a  class  they  may  be  the  most 
precious  of  substances,  yet,  on  account  of  their 
peculiarities,  no  one  of  the  precious  stones  is  fit 
to  be  used  as  a  standard  of  value. 

Again,  since  values  differ  among  themselves  by 
degrees,  since  they  rise  and  fall  by  gradation,  a 
standard  of  value  must  be  capable  of  systematic 
and  accurate  subdivision,  without  loss  of  value ; 
but  precious  stones  cannot  be  fused  together  so  as 
to  equalize  their  properties,  nor  can  they  be  sub- 
divided without  destruction  both  of  their  substance 
and  of  their  value.  Such  adaptability  to  subdi- 
vision must  apply  not  only  to  the  mass,  but  also  to 
those  qualities  of  the  substance  in  which  its  value 
inheres,  so  that,  of  any  two  equal  quantities  of  the 
substance  selected  as  a  standard  of  value,  either 
will  be  worth  as  much  as  the  other,  and  any  frac- 
tion of  one  of  these  quantities  will  be  equal  in 
value  to  a  like  fraction  of  the  other.  This  proper- 
ty of  continuous  divisibility,  without  loss  of  char- 
acteristics or  value,  is  entirely  absent  from  pre- 
cious stones,  but  it  is  the  distinguishing  quality 
of  all  metals  which  are  capable  of  being  brought 
into  a  state  of  uniform  purity. 

We  have  already  seen  that  many  different  sub- 
stances have  been  used  as  money,  and  that  all  have 


256  THE  PEOPLE'S  MONEY 

been  forsaken  for  metals,  as  communities  advanced 
in  industrial  development.  Even  under  present 
conditions,  it  is  conceivable  that  the  world  might 
get  on  with  a  standard  of  value  based  on  one  of 
the  grosser  metals,  such  as  iron,  tin,  or  copper, 
because  those  metals  possess  value  and  also  the 
property  of  accurate  subdivision;  but  since  the 
number  of  metals  affords  a  choice  among  them, 
that  choice  has  fallen  finally  upon  silver  and  gold. 
It  is  obvious  that,  in  fixing  upon  silver  and  gold  to 
be  standards  of  value,  modern  nations  have  simply 
followed  a  natural  law,  because  these  metals  have 
always  been,  and  are  everywhere,  regarded  by  all 
men  with  the  highest  degree  of  estimation,  i.e., 
they  have  been  more  constantly  and  more  univer- 
sally than  all  other  metals,  objects  of  that  relation 
which  is  designated  by  the  term  value,  and  hence 
are  the  best  fitted  to  be  exponents  of  value. 

At  the  present  day,  even,  there  is  a  divergence. 
Among  some  nations  silver  is  the  accepted  stand- 
ard of  value ;  elsewhere  gold  is  the  standard ;  while 
the  nations  of  the  Latin  Union  maintained  for 
many  years  a  dual  standard  (or,  as  the  advocates  of 
that  system  call  it,  a  double  standard),  composed 
of  gold  and  silver,  in  the  proportion,  as  to  value,  of 
one  unit  of  gold  to  15J  units  of  silver.  At  present 
the  tendency  seems  to  be  toward  the  general 
adoption  of  gold  as  the  sole  standard  among  the 
most  advanced  nations,  and  many  persons  think 
this  tendency  should  be  arrested — some  urging 
that  the  use  of  silver  and  gold  jointly  should  be 


THE  STANDARD  OF  VALUE  257 

secured  by  an  international  agreement ;  and  others 
advocating  even  the  free  coinage  of  silver  in  this 
country  alone,  at  the  present  rate  of  412 \  grains, 
900  fine,  to  the  dollar.  It  is  a  question  of  moment- 
ous consequence,  because  if  the  bi-metallists  are 
right,  there  is  a  fatal  malady  in  the  very  heart  of 
the  whole  social  and  industrial  structure  of  the 
civilized  world;  while  if  they  are  wrong,  their 
efforts  may  undermine  and  wreck  that  structure  to 
no  purpose. 

The  discussion  of  bi-metallism,  however,  cannot 
be  undertaken  here.  The  purpose  of  this  treatise 
confines  it  to  the  exposition  of  those  principles 
which  should  be  known  to,  and  respected  by,  those 
who  control  our  money  and  monetary  affairs ;  be- 
cause they  are  principles  which  take  their  rise  in 
the  nature  of  things,  and  give  vitality  to  the  natu- 
ral laws  which  must  eventually  determine  our 
prosperity,  in  spite  of  legislative  or  administrative 
direction  or  obstruction. 

Without  reference,  therefore,  to  the  questions 
raised  by  the  bi-metallists,  let  us  proceed  to  in- 
quire how  it  has  come  about  that  the  world  is  now 
gravitating  toward  the  single  gold  standard.  We 
have  already  seen  that  universal  industry  produces 
universal  commerce  ;  universal  commerce  requires 
a  world's  clearing-house ;  London  is  the  clearing- 
house ;  in  London  gold  is  the  money  of  ultimate  set- 
tlement, and  all  the  advanced  countries  of  the  world 
seem  to  be  under  compulsion  to  adopt  the  same 
usage.  Now,  why  does  London  insist  on  gold? 
17 


CHAPTEK  XX. 

THE  GOLD  STANDAKD 

The  gold  standard  has  not  been  established  by 
measures  designed  to  bring  about  that  result,  but 
it  has  come  into  use  under  the  influence  of  com- 
mercial forces,  which  in  their  origin,  nature,  and 
effect  were  altogether  independent  of  any  reason- 
ing or  theorizing  as  to  the  material  of  money  or 
the  measurement  of  values.  These  commercial 
forces  were  engendered  by  the  momentous  indus- 
trial changes  that  have  occurred  during  the  nine- 
teenth century,  and  they  received  their  energy  and 
were  determined  in  the  direction  of  their  influence 
by  the  extension  of  civilization,  the  spread  of  in- 
dustry, the  diversification  of  employments,  the 
multiplication  of  products,  the  expansion  of  con- 
sumption, the  improvements  in  transportation,  and 
the  marvellous  increase  in  the  rapidity  of  communi- 
cation, and  in  the  volume  of  trade  and  traffic,  which 
have  taken  place  during  the  last  fifty  years. 

The  adoption  of  gold  as  the  sole  standard  of 
value,  wherever  these  changes  have  occurred,  is 
just  as  natural,  as  inevitable,  and  as  final  an  out- 
come of  such  changes  as  are  the  substitution  of 
steam-power  for  horses  in  land  transportation  and 
for  sails  in  navigation ;  the  substitution  of  gas  and 


THE   GOLD  STANDARD  259 

electricity  for  whale-oil  and  candles  in  illumina- 
tion ;  the  substitution  of  iron  and  steel  for  wood  in 
ship-building-;  and  the  change  from  old  and  un- 
satisfactory devices  to  the  present  systems  of  post- 
office,  police,  and  fire  department  organization  and 
equipment.  None  of  these  substitutions  occurred 
suddenly.  They  were  at  first  proposed  by  theorists, 
and  were  long  contended  for  in  argument ;  but  in 
all  cases  they  worked  their  own  way  slowly,  by  ex- 
periment at  obscure  initial  points,  widely  apart,  and 
are  established  now  only  because  they  are  the  best 
things  of  their  several  kinds  that  the  world  has  had 
any  knowledge  of,  and  they  are  destined,  no  doubt, 
in  their  turn  to  be  supplanted  by  other  things  now 
unknown  and  undreamed  of. 

Each  one  of  these  new  devices  encountered  op- 
position, and  even  denunciation ;  each  affected  in- 
juriously the  industries  and  fortunes  of  individuals 
and  communities ;  each  was  delayed  and  obstructed 
by  ignorance  and  prejudice  ;  each  was  more  costly 
than  that  which  it  supplanted  ;  but  all  are  now  rec- 
ognized as  so  many  achievements  in  the  progress  of 
mankind  from  the  inferior  and  primitive  toward  the 
modern  and  superior  conditions  of  individual  well- 
being  and  social  elevation.  The  communities  that 
earliest  adopted  these  improvements  have  longest 
enjoyed  their  benefits,  and  have  thereby  become 
recognized  as  among  the  advanced  communities 
of  the  world.  Those  that  have  not  yet  adopted 
them  are  laggards  in  civilization. 

To  understand  how  the  adoption  of  the  single 


260  THE  PEOPLE'S  MONEY 

gold  standard  is  related  to  all  these  other  substitu- 
tions of  the  new  and  better  for  the  old  and  worse, 
will  be  found  easy  enough  if  one  bears  in  mind  the 
principles  which  have  been  set  out  and  illustrated  in 
the  preceding  chapters  of  this  treatise — principles 
drawn  from  what  Montesquieu  calls  "the  nature 
of  things."  Let  us  review  these  briefly.  1.  The 
principle  that  progress  in  respect  to  the  material 
of  money  has  always  been,  and  must  always  be,  from 
less  valuable  to  more  valuable  substances.  (Chap. 
IY.)  2.  The  principle  that  confidence  is  a  sine 
qua  non  of  the  monetary  efficiency  of  any  circulat- 
ing medium.  (Chap.  VI.)  3.  The  principle  that 
definiteness  and  stability  of  value  are  indispensable 
qualities  of  money.  (Chap.  VIII.)  4.  The  prin- 
ciple that  only  money  good  everywhere,  within  a 
given  area  of  industry  or  trade,  is  available  in  the 
settlements  of  balances  at  the  point  upon  which 
the  exchanges  of  that  area  are  centred.  (Chap. 
XVI.)  5.  The  principle  that  there  can  be  but  one 
standard  of  value  in  any  such  area.  (Chap.  XIX.) 
The  first  principle  has  for  its  logical  sequence 
the  practical  maxim,  that  the  material  of  highest 
intrinsic  value  used  as  money  in  any  community, 
becomes  necessarily  the  standard  of  value  there.  * 

*  It  is  interesting  to  observe  that  this  result  of  the  principle  in 
question  is  the  exact  complement  of  Gresham's  Law.  According 
to  this  law,  the  inferior  elements  of  a  mixed  currency  obtain  the 
most  rapid  circulation,  while  according  to  the  natural  law  here 
set  forth,  only  the  higher  elements  of  a  currency  become  availa- 
ble for  settling  balances  among  banks  and  bankers. 

There  can  be  no  doubt  that  where  these  two  opposing  laws  are 


THE  GOLD  STANDARD  261 

Taking  the  civilized  and  commercial  nations  of  the 
world  which  settle  their  trade  balances  in  London 
as  one  community,  and  recognizing,  as  we  must, 
that  an  ounce  of  gold  is  of  higher  intrinsic  value 
than  an  ounce  of  silver,  copper,  or  nickel  (the  only 
other  money  metals  now  in  use),  it  is  evident  that, 
according  to  the  maxim  just  stated,  gold  of  neces- 
sity must  be  the  standard  of  value  in  London. 

The  second  principle  is  that  nothing  can  pass  as 
money  unless  there  is  confidence  in  the  future  con- 
tinuity of  its  efficiency  as  a  medium  of  purchase 
and  payment.  This  principle  precludes  the  use  as 
international  money  of  any  metal  but  gold,  because 
each  of  the  other  money  metals  has  forfeited  that 
confidence  by  having  become,  somewhere  and  at 
some  time,  inefficient  as  a  medium  for  the  settle- 
ment of  international  balances,  while  gold  has 
steadfastly  maintained  its  efficiency  in  that  regard 
everywhere  and  at  all  times. 

The  third  principle  requires  gold  because  that 
metal  alone  has  remained  definite  and  stable  in 
purchasing  power.* 

allowed  free  play  they  tend  to  neutralize  each  other,  and  to  pre- 
serve all  the  elements  of  a  mixed  currency  at  a  uniform  value  ; 
for,  although  each  law  is  constantly  operative  to  sift  out  in  a  dis- 
criminating way  the  better  from  the  worse  elements,  yet  through 
the  return  flow  of  exchanges  the  elements  of  the  two  currents 
become  again  mingled  together  in  the  general  circulation. 

*  It  used  to  be  contended  by  some  that  gold  has  advanced  in 
purchasing  power,  and  that  silver  alone  has  been  stable  in  that 
respect ;  but  since  the  great  decline  in  the  value  of  silver  in  the 
last  few  years  we  hear  no  more  of  that  contention. 


202  THE  PEOPLE'S  MONEY 

The  fourth  and  fifth  principles  obviously  make 
gold  the  only  logical  money  in  London,  because  (1) 
it  is  the  most  valuable  of  the  money  metals;  (2)  it 
alone  possesses  the  confidence  of  all  nations  in 
respect  to  the  permanency  of  its  value;  and  (3) 
according  to  commonly  accepted  methods  of  com- 
putation, gold  has  been  more  definite  and  stable  in 
value  than  any  other  substance  used  as  money  any- 
where in  the  world.  While  it  is  evident  that  "  the 
nature  of  things  "  is  responsible  for  the  use  of  gold 
as  the  sole  medium  of  settlement  in  London,  it  may 
be  interesting  to  follow  the  process  by  which  the 
transition  from  silver  to  gold  has  been  effected. 

The  changes  mentioned  above  as  having  been 
wrought  during  the  present  century,  have  reduced 
all  values  except  the  value  of  human  endeavor,  but 
this  last  has  never  before  been  so  well  compensated 
as  it  is  now.  Whether  we  consider  wages  or  com- 
mercial profits,  or  professional  emoluments,  or  the 
riches  acquired  by  invention,  speculation,  or  what 
is  euphemistically  termed  "handling  properties," 
we  will  find  that  they  have  been  upon  a  steadily 
advancing  scale  of  value,  and  that  the  time  and 
talents  and  efforts  of  men  were  never  so  highly 
paid  for  as  they  are  now;  and  since,  simultane- 
ously, all  other  things  have  been  cheapened,  the 
earnings  of  men  bring  them  in  vastly  more  in  all 
articles  of  need,  of  comfort,  and  of  luxury  than 
could  have  been  acquired  by  the  same  effort  at  any 
previous  time. 

Concurrently  with  the  enhancement  in  value  of 


THE  GOLD   STANDARD  263 

individual  exertion,  there  has  been  an  immeasur- 
able increase  in  the  number  of  men,  women,  and 
children  who  participate  in  these  increased  profits, 
and  for  whose  continuous  employment  and  main- 
tenance there  must  be  innumerable  currents  of 
trade  kept  running  in  every  direction.  Now,  it 
has  been  shown  in  Chap.  I.  that  for  every  such 
current  of  trade  there  is  a  counter-current  of  ex- 
change setting  toward  some  money  centre,  and 
from  every  money  centre  similar  but  larger  cur- 
rents flow  toward  London  (directly  or  through 
intermediate  points  of  settlement) ;  so  that  London 
is  at  the  present  day  the  centre  of  centres  for  the 
settlement  of  balances — the  clearing-house  of  the 
commerce  of  the  world. 

London  has  not  always  occupied  this  position, 
nor  did  that  city  attain  it  suddenly.  The  currents 
of  trade,  on  the  one  hand,  and  of  exchanges  that 
now  centre  there,  on  the  other,  have  not  sprung  in- 
to existence  all  at  once ;  they  have  gradually  been 
developed  out  of  a  number  of  little,  sluggish 
movements  conducted  by  .means  of  the  inferior 
appliances  of  our  great-grandfathers — the  pack- 
horse  first,  then  the  wagon,  the  sailing-ship,  the 
caravan,  the  post-rider,  the  canal-boat,  etc.,  in 
transportation,  and  all  sorts  of  money  and  sub- 
stitutes for  money  in  settlements  and  exchanges. 
With  the  progress  of  the  century  and  the  improve- 
ments in  appliances,  these  movements  broadened 
and  deepened  and  produced  others  of  like  char- 
acter ;  the  channels  through  which  they  were  con- 


264  THE  PEOPLE'S  MONEY 

ducted  became  more  defined,  more  direct  and  safer, 
and  the  volume  of  each  movement  became  more 
constant;  hence  gradually  the  clearings  at  money 
centres  became  greater  in  volume,  and  settlements 
between  cities  and  sections  required  the  use  of 
larger  and  larger  amounts  of  money,  and  exacted 
money  of  the  best  quality  obtainable  within  the 
limits  of  the  district. 

At  first  the  trade  and  exchanges  of  each  district 
constituted  a  separate  system,  and  some  town  be- 
came the  district  centre ;  then  there  arose  dealings 
between  people  in  some  districts  and  those  in 
others,  and  these  were  settled  at  some  one  point — 
never  at  more  than  one — which  might  or  might  not 
have  been  a  district  centre ;  and  so,  as  these  move- 
ments became  extended  and  ramified  and  inter- 
laced, new  centres  replaced  old  ones ;  but  always 
there  were  fewer  and  fewer  centres,  and  always 
each  new  centre  was  a  bigger  and  richer  place  than 
that  it  supplanted;  and  always,  also,  the  settle- 
ments at  the  new  points  necessitated  the  use  of 
more  money,  and  of  the  best  money  obtainable 
anywhere  within  the  enlarged  area. 

Now,  as  long  as  there  were  a  multitude  of  little 
trade  districts  scattered  over  Europe  and  North 
America,  there  might  have  been  almost  as  many 
distinct  monetary  systems,  because  each  district 
centre  was  to  a  great  extent  independent  of 
others;  but  as  the  districts  grew  into  sections 
and  the  sections  became  multiplied,  and  as,  after- 
ward, sectional  trade  limits  faded,  and  in  each 


THE  GOLD  STANDARD  265 

country  one  national  centre  took  the  place  of  many 
sectional  and  district  centres,  it  became  necessary 
to  unify,  both  in  form  and  in  value,  the  money  in 
use  within  each  of  these  constantly  expanding 
trade  peripheries;  and  at  each  step  in  monetary 
reform  the  standard  selected  for  the  enlarged  area 
was  in  fact,  and  had  to  be,  in  economical  logic, 
that  form  of  money  which  compressed  the  highest 
value  into  the  least  mass.  Among  other  reasons 
for  this,  one  of  the  most  practicable  and  intelligi- 
ble is  economy  in  transportation  of  the  medium  of 
settlement.  As  long  as  it  is  cheaper  to  transport 
1,000  ounces  of  gold  than  16,000  ounces  of  silver, 
and  as  long  as  these  two  masses  of  metal  are  of 
equal  value,  it  is  obvious  that  persons  having  to 
remit  specie  will  send  gold  rather  than  silver ;  and 
as  the  distance  to  the  point  of  settlement  increases, 
the  advantages  of  gold  shipments  over  silver  must 
increase  proportionately. 

In  early  days  obstructions  to  transportation 
were  so  great  that  values  in  any  one  place  main- 
tained a  degree  of  stability  impossible  under  pres- 
ent conditions.  Areas  of  reciprocal  trade  were 
circumscribed  and  the  barriers  of  nature  were  so 
effective  that  commerce  could  break  through  them 
at  only  a  few  points  and  by  methods  both  tedious 
and  costly.  Robbers  infested  the  overland  routes, 
pirates  roamed  the  seas ;  hence  overland  transpor- 
tation was  dependent  upon  caravans  under  mili- 
tary escort,  and  marine  commerce  was  hazardous 
beyond  modern  comprehension. 


266  THE  PEOPLE'S  MONEY 

The  result  of  this  general  condition  was  that  the 
industrial  world  was  made  up  of  numerous  distinct 
communities,  with  but  little  local  trade  in  any,  and 
very  meagre  intercourse  with  each  other.  Under 
such  conditions  the  stock  of  money  in  each  of 
these  communities  was  of  small  value  and  con- 
sisted of  numerous  pieces  of  minute  denomination. 
Silver  was  the  only  precious  metal  cheap  enough 
to  serve  as  a  multiple  of  these  minute  monetary 
values,  and  the  obstacles  to  transportation  kept  each 
community's  stock  of  silver  nearly  constant  in 
quantity,  and  consequently  nearly  stable  in  value. 
If  there  had  been  any  use  for  gold  as  money  in 
such  communities  the  stock  would  have  been  more 
variable,  because  value  is  more  portable  in  gold 
than  in  silver,  and  consequently  its  value  as  a  basis 
would  have  been  less  stable. 

The  present  condition  is  the  opposite  of  that 
then  existing,  for  now  industry  is  coextensive  with 
civilization,  and  commerce  is  almost  universal,  so 
£hat  there  is  hardly  anywhere  a  community  without 
trade,  or  beyond  the  influence  of  the  world's  com- 
merce. This  condition  of  industry  and  trade  neces- 
sitates incessant  settlement  of  balances  between 
trade  centres,  and  these  balances  are  very  large  in 
amount — so  that  gold  now  derives  its  equability  of 
value  from  its  superior  portability  because  trans- 
portation facilities  are  so  universal  and  so  cheap 
that  the  slightest  elevation  of  value  at  one  point 
sets  in  motion  currents  of  supply  from  many  other 
points,  and  the  effect  is  the  preservation  of  the 


THE  GOLD  STANDARD  207 

world's  stock  of  gold  at  very  nearly  the  same  value 
everywhere. 

Silver,  as  a  standard  of  value  within  circum- 
scribed and  barrier-bound  limits,  bears  to  gold  as 
the  general  standard,  now  that  the  barriers  are  re- 
moved, a  relation  like  that  which  lakes  bear  to  the 
ocean  as  sources  of  moisture  supply  and  objec- 
tive points  of  drainage.  For  its  own  district  each 
lake  suffices  as  a  reservoir  for  receiving  the  exces- 
sive rainfall  and  yielding  it  back  to  the  clouds,  but 
for  equalizing  and  distributing  the  world's  supply 
of  moisture,  oceans  alone  suffice. 

The  natural  laws  that  control  the  currents  of  the 
air,  and  the  formation  and  condensation  of  clouds, 
are  not  more  constant  than  are  the  natural  laws 
that  control  the  currents  of  commerce,  and  the  dis- 
tribution of  capital.*  It  is  natural  law  alone  that 
has  gradually  made  gold  the  prime  standard  of 
value.  Thus  it  came  about  that  Great  Britain  was 
the  first  nation  to  adopt  the  single  gold  standard 
(1816),  while  for  a  long  time  afterward  other  na- 
tions did  very  well  without  it.  The  principal 
countries  of  Continental  Europe  were  commercially 
isolated  by  the  protective  system,  and  their  bi-me- 
tallic  currencies  supplied  not  only  the  needs  of  do- 
mestic circulation,  but  gold  for  trade  with  gold 
countries,  and  silver  for  trade  with  the  South  and 
East. 

*  The  efforts  now  being  made  to  preserve  the  monetary  use  of 
silver  in  international  trade  are  on  a  level  with  the  pranks  of 
Dyrenforth,  and  are  destined  to  a  like  failure . 


268  THE  PEOPLE'S  MONEY 

Before  the  advent  of  ocean  steamers  the  United 
States  were  geographically  isolated;  hence  here, 
too,  there  was  for  a  time  a  bi-metallic  circulation : 
for  we  used  gold  to  settle  Canadian  and  European 
balances  and  silver  to  settle  balances  arising  in  the 
trade  with  Central  and  South  America  and  the 
West  Indies.  The  debasing  of  the  gold  standard 
in  1834  drove  our  silver  coins  abroad,  and  from 
that  time  we  were  practically  on  a  gold  basis  until 
1860 ;  but  to-day  commerce  has  brought  all  nations 
into  one  monetary  community,  and  forces  upon  all, 
in  "  the  nature  of  things,"  the  use  of  one  and  the 
same  standard  of  value.  It  is  the  operation  of  nat- 
ural law  alone  that  brought  gold  coins  into  use  in 
Italy  when  the  little  States  of  the  Peninsula  became 
united  into  a  kingdom,  that  demonetized  silver  in 
Central  Europe  when  Prussia  expanded  into  the 
Empire  of  Germany,  and  that  closed  the  mints  of 
the  Latin  Union  to  the  coinage  of  silver  when  the 
Franco-Prussian  war  left  France  a  Eepublic,  with 
her  enormous  industrial  forces  stimulated  to  activ- 
ity by  the  depletion  wrought  by  the  contest,  and 
set  free  from  the  trammels  and  burdens  of  Imperial 
centralism  and  extravagance. 

Silver  now  suffices  as  a  standard  of  value  in 
Mexico,  Central  and  South  America,  and  Asia,  be- 
cause these  countries  are  still  in  a  comparatively 
primitive  state  of  industrial  development ;  but  Ja- 
pan has  adopted  the  single  gold  standard,  and  in 
India  there  are  already  signs  that  industry,  ex- 
panded and  better  organized,  is  outgrowing  the 


THE  GOLD  STANDARD  269 

silver  stage — and  if  her  commerce  were  not  so 
largely  confined  to  Great  Britain,  India  would 
now  find  it  necessary  to  adopt  the  gold  standard 
also. 

At  the  beginning  of  the  nineteenth  century 
Great  Britain  was  by  far  the  foremost  commercial 
nation  of  the  world,  and  there  industry  was  more 
active  and  diversified,  labor  was  better  compen- 
sated and  consumption  more  extended  than  any- 
where else ;  hence  it  is  in  accordance  with  the  prin- 
ciples stated  above  that  Great  Britain  should  have 
early  adopted  the  single  gold  standard.  It  seems 
now  as  if  the  statesmen  who  were  instrumental  in 
bringing  about  the  new  Coinage  Law  (of  Great 
Britain),  in  1816,  had  a  very  imperfect  understand- 
ing of  the  influences  constraining  them  to  that 
course ;  but  they  felt  the  need  of  doing  something, 
and  if  Lord  Liverpool  had  not  hit  upon  the  right 
expedient,  some  subsequent  premier  would  cer- 
tainly have  done  so,  under  the  guidance  of  clearer 
views  as  to  the  effect  of  the  establishment  of  the 
single  gold  standard  upon  the  foreign  commerce 
of  Great  Britain,  and  upon  the  future  position  of 
London  toward  the  world's  commerce. 

Next  to  Great  Britain  the  United  States  became, 
early  in  the  century,  the  country  of  greatest  and 
most  diversified  industrial  and  commercial  activity, 
and  consequently,  in  1834,  this  country  adopted  in 
fact,  though  Congress  did  not  establish  by  law,  the 
single  gold  standard.  As  apparently  in  England, 
so  certainly  here,  the  change  was  effected  by  men 


270  THE  PEOPLE'S  MONEY 

having  quite  other  ends  in  view.  To  encourage 
and  reward  the  gold  miners  of  the  United  States, 
it  was  said,  the  pure  gold  in  the  dollar  was  re- 
duced from  24.75  to  23.22  grains.  This  change,  as 
was  intended,  gave  the  miners  more  dollars  to 
the  ounce  than  they  were  getting  before;  but  as 
the  silver  dollars  were  not  changed  in  weight,  the 
relative  value  of  the  two  metals  in  our  currency 
was  reversed,  and  silver  dollars  disappeared  from 
circulation.  This  result  evidently  was  neither  fore- 
seen nor  desired,  but  it  was  universally  accepted 
without  remonstrance,  because  no  doubt  no  one 
was  thereby  hurt  or  inconvenienced. 

Up  to  1834,  gold  coins  could  not  circulate  in  the 
United  States,  and  the  country  was  practically  on 
the  silver  basis.  After  1834,  silver  dollars  could 
no  longer  circulate,  and  the  country  had  only  the 
gold  standard  up  to  the  suspension  of  specie  pay- 
ment at  the  outbreak  of  the  Civil  War — a  period 
of  nearly  twenty-eight  years — during  which  the 
United  States  gained  more  in  industrial  develop- 
ment, commercial  extension,  population,  and  a  gen- 
erally diffused  prosperity  of  the  people,  than  in  all 
their  previous  existence. 

In  1871,  and  while  specie  payments  in  the  United 
States  were  still  suspended,  Germany  attempted  to 
substitute  gold  coins  for  silver  coins  in  the  mone- 
tary circulation  of  the  Empire,  and  her  sales  of 
silver  produced  a  disturbance  in  the  European 
markets  which  caused  France  at  first  to  restrict  her 
coinage  of  silver,  and  finally  to  discontinue  it  alto- 


THE  GOLD   STANDARD  271 

gether.  This  restriction  began  in  France  in  1873, 
and  in  the  same  year  the  United  States  so  revised 
their  coinage  laws  as  to  close  their  mints  to  the 
free  coinage  of  silver.  Not  to  have  done  so  would 
have  had  the  effect,  when  resumption  took  place,  of 
substituting  the  silver  standard  for  the  gold  (not  in 
law,  but  in  fact,  inverting  the  action  taken  in  1834). 
No  doubt  resumption  would  have  been  rendered 
much  easier  under  the  silver  than  it  could  be  under 
the  gold  standard,  and  no  doubt  also  Germany 
would  have  been  very  glad  to  have  sent  her  thalers 
to  our  mints,  and  to  have  taken  in  their  place  the 
gold  which  our  Government  subsequently  accumu- 
lated in  this  country  by  the  sale  of  bonds;  and 
further,  it  may  be  conceded  to  be  probable  that  in 
that  case  no  one  in  Europe  would  now  be  discuss- 
ing the  silver  question,  because  the  nations  of  the 
Latin  Union  would  have  been  able  to  keep  their 
silver  coinage  within  safe  limits  by  adopting  our 
ratio  of  16  to  1,  and  then  there  would  have  been 
no  silver  question  there,  but  where  would  we  have 
been?  What  would  it  have  profited  us  to  have 
changed  places  with  Germany — becoming  silver 
mono-metallic  in  order  that  she  might  be  gold 
mono-metallic?  What  good  would  it  have  done 
for  us  that  the  Latin  Union  could  have  safely 
drifted  under  the  gold  standard,  in  fact,  while 
maintaining  bi-metallism  in  law,  as  we  did  after 
1834? 

The  same  inevitable  law  that  imposed  the  gold 
standard  on  Great  Britain  in  1816,  that  maintained 


272  THE  PEOPLE'S  MONEY 

it  in  this  country  from  1834  to  1862,  that  forced  it 
upon  Japan  as  soon  as  that  singular  kingdom 
sprung  into  commercial  life,  and  that  impelled 
Bismarck  to  try  to  establish  it  the  moment  Ger- 
many became  an  Empire,  would  have  been  at  work 
among  us  driving  us  by  the  scourges  of  industrial 
depression  and  disorder  toward  our  proper  des- 
tiny as  the  controlling  gold  standard  country  of 
the  world.  "We  know  what  the  country  has  gained 
under  the  gold  standard  since  1879.  No  one  can 
compute  what  we  might  have  lost  if  we  had  been 
during  the  same  period  on  the  monetary  plane  of 
India,  Mexico,  and  China,  with  all  industrial  Eu- 
rope raised  to  the  higher  level  of  the  gold  stand- 
ard, and  kept  there  by  the  weight  of  our  silver 
circulation,  bearing  down  the  other  end  of  the 
lever. 

It  would  have  been  easier  for  us  to  have  resumed 
specie  payments  in  1879,  in  silver,  rather  than  in 
gold,  just  as  climbing  a  low  hill  is  easier  than 
climbing  a  high  mountain ;  but  for  a  nation  that  is 
impelled  both  by  ambition  and  by  destiny  to  stand 
upon  the  highest  elevation  of  human  attainment  in 
commerce  and  industry,  it  would  be  a  monstrous 
blunder,  a  crime  against  our  own  posterity,  for  us 
now  voluntarily  to  descend  from  the  position  we 
have  attained  with  so  much  sacrifice  and  at  so 
great  cost.  Gold  mono-metallism  is  the  unavoid- 
able destiny  of  this  country ;  the  sooner  we  recog- 
nize this  and  fix  it  in  our  laws,  the  sooner  will  we 
reap  the  fruits ;  the  longer  we  defer  the  recogni- 


THE  GOLD  STANDABD  273 

tion,  the  more  we  impede  and  postpone  its  estab- 
lishment by  law — the  longer  will  our  industries  be 
hampered  and  all  our  business  deranged  by  finan- 
cial unrest  and  commercial  apprehension.  Should 
we  unfortunately  let  go  the  single  gold  standard, 
there  will  be  nothing  to  take  hold  of  but  silver 
mono-metallism,  for  bi-metallism  for  us  is  a  snare 
and  a  delusion. 

France  stands  next  to  the  United  States  in  the 
order  of  modern  industrial  progress ;  and  had  it  not 
been  for  the  unsettled  social  and  political  state  of 
that  country,  terminating,  as  it  did,  in  an  unfor- 
tunate and  disastrous  war  with  Germany,  France 
would  probably  have  made  more  decided  advance 
than  she  has  done  toward  the  single  gold  standard 
of  value. 

The  monetary  troubles  of  France  began  when 
the  revolution  of  1789  was  being  engendered  by 
the  follies  and  excesses  of  absolutism;  their  first 
phase  culminated  in  the  issue  of  assignats,  in 
December  of  that  year;  and  when  order  was  re- 
established it  was  found  convenient  to  adopt  what 
has  been  called  the  double  standard  of  value— a 
purely  doctrinaire  device,  which  became  practic- 
able only  because  of  the  geographical  position  of 
France,  midway  between  the  populations  of  eastern 
and  southern  Europe,  and  of  Asia,  which  were  all 
silver  basis  people,  on  the  one  side,  and  on  the 
other,  Great  Britain,  with  the  other  gold-basis  na- 
tions of  northern  Europe.  From  what  precedes,  it 

would  appear  that  France  is  destined  eventually  to 
18 


274  THE  PEOPLE'S  MONEY 

be  driven  to  the  gold  standard— and  all  western 
Europe  must  follow.  Russia,  Turkey,  and  their 
dependencies  cannot  adopt  it  for  many  years  to 
come.  They,  with  Asia  and  Africa,  South  and 
Central  America,  must  remain  silver  mono-metallic 
countries,  because  in  none  of  these,  except  possibly 
India,  is  industry  as  yet  sufficiently  vigorous  and 
sufficiently  free  to  need  or  to  use  gold. 


CONCLUSION 

It  is  to  be  hoped  that  the  reader  who  has  fol- 
lowed the  train  of  explanations  and  reasoning  laid 
down  in  the  preceding  pages,  will  have  acquired 
sufficient  interest  in  the  subject  to  feel  a  desire 
to  test  the  writer's  accuracy  by  observing  more 
closely  than  he  has  before  done,  those  movements 
of  money,  or  of  trade,  that  pass  daily  before  his 
eyes.  Such  observation,  it  is  believed,  will  estab- 
lish the  main  propositions  here  stated ;  and  if  this 
be  so,  then  it  must  follow  that  it  is  of  supreme  im- 
portance for  these  propositions  to  be  generally 
understood  and  accepted  by  the  great  body  of  our 
citizens. 

In  the  United  States  nearly  everyone  is  in  some 
way  connected  with  or  dependent  upon  industry. 
Variety  of  soil,  climate,  and  occupations,  create  and 
sustain  an  immense  internal  trade.  The  bounty  of 
nature,  the  energy  and  enterprise  of  our  people, 
have  built  up  a  vast  foreign  commerce.  We  have  a 
great  capital  invested  in  farm  improvements,  in 
live  stock,  in  mining  appliances,  in  banking  insti- 
tutions, in  manufacturing  establishments,  in  rail- 
roads, canals,  and  vessels,  all  dependent  for  profita- 
ble employment  upon  the  activity  of  trade  and 
commerce. 


276  THE  PEOPLE'S  MONEY 

The  revenues  of  the  general  government  are 
mainly  derived  from  taxes  upon  imports.  The 
finances  of  states,  counties,  and  cities  rest  upon  a 
basis  of  values  that  cannot  be  maintained  unless 
the  currents  of  trade  run  freely.  Probably  no 
country  in  the  world  is  so  bound  up  in  industry  as 
this  is ;  certainly  in  none  are  there  so  many  indi- 
viduals, in  proportion  to  the  whole  population, 
engaged  in  working  for  themselves,  and  so  many 
who  habitually  buy  most  of  what  they  consume 
and  sell  most  of  what  they  produce.  At  the  same 
time,  never  before  have  manufactures,  trade,  and 
transportation  entered  so  largely  into  the  employ- 
ments of  the  world  at  large,  nor  has  commerce  ever 
been  so  broadly  extended  as  it  is  now,  or  so  sensi- 
tive at  every  point  throughout  its  extension  to  the 
influence  of  local  incidents,  and  even  to  the  actions 
and  opinions  of  individuals.  The  perceptions  or 
the  apprehensions  of  a  few  money  magnates  are 
reflected  in  the  movements  of  capital,  and  the 
prices  of  securities  at  the  chief  financial  centres ; 
these  centres  in  turn  control  the  rates  of  interest, 
and  affect  the  facility  of  loans  all  over  Europe,  and 
North  America,  and  variations  in  these  rates  and 
facilities  accelerate  or  retard  the  currents  of  trade, 
and  excite  or  depress  industrial  activity  through- 
out the  whole  world. 

While  commerce  is  thus  daily  and  hourly  affect- 
ed by  impulses  proceeding  from  the  great  centres, 
it  is  much  more  affected  by  the  reciprocal  play  of 
influences  arising  within  its  own  proper  sphere. 


CONCLUSION  277 

Universality  of  trade,  celerity  of  communication, 
the  organization  of  speculation,  and  the  facility  of 
transportation,  have  covered  a  large  part  of  the 
earth's  habitable  surface  with  a  network  of  mer- 
cantile operations,  each  connected  with  all  the 
others  as  if  by  the  interweaving  of  threads.  Un- 
numbered commercial  influences  converge  at  every 
point  where  trade  is  going  on,  and  at  every  such 
point  fresh  influences  of  greater  or  less  inten- 
sity are  generated  or  developed  and  radiate  in  all 
directions.  The  buyer  and  seller  of  wheat  in  Chi- 
cago, of  cotton  in  Bombay,  of  wool  at  Cape  Town, 
stand  at  the  crossing  of  threads  which  are  beaded 
with  similar  transactions  extending  from  Odessa 
to  San  Francisco,  from  Canton  to  New  Orleans, 
from  Melbourne  to  Milwaukee ;  and  every  dealer  in 
these  articles  receives,  consciously  or  unconscious- 
ly, some  impulse  from  every  transaction,  wherever 
it  may  occur. 

The  influence  of  organized  speculation  upon 
markets  and  trade,  communicated  through  a  won- 
derfully intricate  and  minute  system  of  telegraphic 
reports,  renders  the  vast  network  of  commerce  a 
living  tissue,  throbbing  with  thought  and  feeling 
along  every  line  of  electric  communication.  Cur- 
rents of  trade  run  through  its  veins  and  arteries  at 
the  speed  of  the  locomotive  and  steamship,  while 
the  volume  of  each  current  varies  incessantly  with 
ever-changing  impressions  and  opinions.  The 
fluctuating  desires,  needs,  and  means  of  individ- 
ual producers  and  consumers,  constitute  the  cap- 


278  THE  PEOPLE'S  MONEY 

illaries  of  the  system,  and  control  the  force  and 
volume  of  these  currents ;  activity  and  rapidity  of 
production  and  consumption  accelerate  their  flow, 
while  opposite  conditions  retard  it. 

Money  is  the  lubricant  of  this  vast  expanse  of 
complicated  machinery;  it  is  money  alone  that  can 
produce  free  movement  at  and  between  the  initial 
and  the  ultimate  points  of  every  industrial  effort, 
for  it  constitutes  the  wages  of  production,  it  de- 
frays the  cost  of  transportation,  it  pays  the  price 
of  consumption.  If  at  any  of  these  points  the  sup- 
ply of  money  is  insufficient  in  quantity  or  defec- 
tive in  quality,  friction  ensues,  and  influences  in- 
jurious to  industry  are  instantaneously  transmitted 
from  that  point  along1  the  unnumbered  lines  di- 
verging from  it.  If  the  points  so  affected  are  nu- 
merous— and  still  more — if  all  the  points  in  a  great 
area  are  similarly  affected,  the  trouble  is  aggrava- 
ted in  a  multiplied  ratio,  and  its  effects  extend  fur- 
ther, and  last  longer. 

Under  normal  conditions,  credit  supplements  the 
use  of  money  in  transactions  of  considerable  mag- 
nitude. At  the  great  centres  of  trade  and  in  the 
extended  operations  of  intersectional,  international, 
and  intercontinental  commerce,  credit  performs  the 
same  functions  that  money  does  in  minor  transac- 
tions, and  at  primary  and  ultimate  points.  If  every 
cargo  shipped  to  Europe  had  to  be  paid  for  in 
money  brought  thence  for  the  purpose,  the  vast 
traffic  of  the  ocean  would  stand  still.  If  credit 
should  so  decline  as  to  prevent  the  negotiation  of 


CONCLUSION  279 

domestic  and  foreign  bills  of  exchange,  the  rail- 
roads, the  manufactories,  all  the  appliances,  all  the 
capital,  and  all  the  labor  employed. in  the  fabrica- 
tion and  transportation  of  commodities,  would  be- 
come as  idle  as  a  locomotive  without  fuel.  But 
while  credit  supplements  the  use  of  money,  the 
maintenance  of  credit  absolutely  depends  upon  a 
supply  of  money  held  in  reserve,  ready  and  suffi- 
cient to  liquidate  whatever  balances  result  from  its 
varied  operations.  Each  individual  must  have 
money  enough  to  keep  his  bank  account  good; 
every  bank  must  have  enough  to  settle  its  balances 
at  the  clearing-house;  the  Treasury  must  have 
enough  to  meet  every  engagement  of  Government ; 
the  country  must  have  enough  to  settle  any  ad- 
verse balance  arising  in  the  foreign  trade.  The 
penalty  for  failure  in  each  of  these  cases  is  dis- 
credit, and  discredit  causes  commercial  and  finan- 
cial disability. 

The  foreign  trade  of  the  country,  aggregating 
annually  in  exports  and  imports  of  merchandise, 
$1,800,000,000  of  value,  is  carried  on  almost  wholly 
on  credit.  Whatever  balances  result  from  the  oper- 
ations which  are  represented  by  this  vast  sum  must 
be  met  in  money,  and  the  money  for  that  purpose 
must  always  be  at  hand  and  available,  or  else  the 
whole  fabric  will  feel  the  shock  of  that  revulsion 
which  proceeds  from  discredit. 

From  this  glance  at  the  money  and  credit  sys- 
tem of  the  country,  it  is  evident  that  every  person 
has  a  direct  and  almost  vital  interest  in  its  being 


280  THE  PEOPLE'S  MONEY 

as  perfect  as  knowledge  and  experience  can  make 
it  and  in  its  being*  maintained  always  in  thorough 
working  order.  In  this  view  is  it  not  the  duty  of 
those  who  understand  the  subject  to  say  to  the 
public  :  If  you  consult  science  in  order  to  be  sure 
that  you  have  the  best  lubricant  for  your  watches, 
your  sewing-machines,  and  your  steam-engines  ;  if 
you  employ  architects  to  arrange,  at  considerable 
cost,  the  flues  and  pipes  by  which  air,  heat,  and 
water  are  made  to  circulate  most  conveniently 
through  your  dwellings  and  public  buildings, 
surely  you  cannot  afford  to  be  indifferent  to  the 
quality,  the  supply,  or  the  regulation  of  the  money 
which  lubricates  all  the  machinery  of  domestic, 
industrial,  and  national  life,  which  sustains  and 
facilitates  the  circulation  of  all  the  products  of 
labor,  all  the  objects  of  consumption  and  accumu- 
lation; for  these  and  these  alone  freight  your 
vessels  and  cars,  fill  your  stores  and  warehouses, 
and  contain  within  themselves  both  the  seeds  and 
the  fruit  of  individual  and  national  prosperity? 
In  the  present  state  of  the  world  good  money, 
honest  money,  alone  can  supply  the  means  and 
secure  the  ends  of  civilized  existence,  and  of  per- 
sonal and  domestic  happiness,  and  such  money  can 
be  secured  only  by  measures  in  harmony  with  those 
natural  laws  which  God  has  ordained  for  the  guid- 
ance of  mankind. 


THEEKD. 


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